Saturday, February 11, 2012

Barron's: THE DOW IS GOING TO 15,000 AND BEYOND!


As far as we know, no one’s smoking anything weird. No one’s got a case of the munchies. According to Barron’s : Based on cyclical patterns of market history, the odds are better than two chances in three that the Dow Jones Industrial Average will reach 15,000 or higher over the next two years. Based on the same cyclical patterns, there's about a 50-50 chance that the Dow could hit 17,000 or more….

….While DOW 15,000 AND 17,000 may sound like dramatic targets, from at least two perspectives -- earnings and inflation -- they are actually rather modest objectives.
In 2011, earnings per share on the Dow grew 12%. Assume a slowdown to half that rate over the next two years, or 6% per year, which is lower than consensus estimates of 9% per year. Since Dow 15,000 from the Thursday's close requires an annual increase of just 8%, the price-earnings ratio on the index would only need to edge up, from the current 13.1 to a still-modest 13.6. Also, if earnings were to grow at consensus expectations, Dow 15,000 could be reached with a P/E of 12.8.
On the same 6% earnings-growth assumptions, Dow 17,000 in two years would boost the P/E on the blue-chip index to 15.4, still average by most standards….

Read all about it at http://online.barrons.com/article/SB50001424052748704444604577207223617121572.html?mod=BOL_twm_fs#articleTabs_article%3D1

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