Every once in a while, I like to break the Dow index down and look at the 30 individual components. I just finished comparing it to where is was on Jun 1, 2008. A few facts:
1 company was dropped from the average (AIG). Its price has dropped 99%. It was replaced with Kraft Foods.
1 other company has dropped more than 90%: Citigroup.
3 companies have dropped between 80 and 90%: Alcoa, BofA and GM.
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5 companies have dropped between 50 and 80%: Dupont, Amex, Boeing, GE and Caterpillar.
The average itself has declined by 43.6%.
The top 3 best performing companies dropped 9.5% (McDonalds), 11.7% (Walmart) and 22% (Home Depot)
GM alone lost 45% of what all of the other companies earned together (on a per-share weighted basis).
The companies that are the largest components of the Dow are IBM, Exxon Mobil and Chevron.
Including AIG, the P/E on the Dow is 27. Excluding AIG and GM, the P/E is about 9.7. Historically, "reasonable" valuations are around 7 at the end of a bear market. Using the more optimistic number, that would put the bottom around 5100. Except earnings are declining rapidly with no end in sight and the impact of unfunded pension fund liabilities hasn't hit yet, either. If the P/E goes to 5 and earnings of the profitable companies drop by another 30%, that could be 2500.
The highest individual P/Es (which applies only to companies earning a profit) are 27.2 for Alcoa, 26 for JP Morgan, 16.4 for Coke and Home Depot is at a very questionable 15.2.
The lowest P/Es today are Caterpillar 4.3, GE 4.7, Amex 5.0 and Chevron 5.3.
A one-point move in any of the Dow components moves the Dow average by almost 8 points.
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