From its August 11 close of 18,614, the Dow needs to climb 7% to reach 20,000. That isn’t likely to happen this year. But it looks achievable over the next 12 months, based on the latest Wall Street price targets for the Dow’s 30 stocks, a roster that includes many of America’s biggest companies, including Apple (AAPL), ExxonMobil (XOM) and JPMorgan Chase (JPM).
Analysts have raised their price targets for Dow stocks in recent months because they see a big pickup in earnings growth in the first six months of 2017. Although earnings estimates for the second half of 2016 have slipped since the end of June, according to research firm Factset, profits are expected to rise by about 15% in the first quarter of 2017 and 13% in the second quarter compared with the same periods a year earlier.
f companies can hit these targets, it wouldn’t be a stretch for the Dow to advance 8%. Add in a dividend yield of 2.6%, and the index’s total return could top 10% over the next year.
Even at 20,000, the Dow wouldn’t be excessively priced. Its price-earnings ratio, now at about 16 times estimated profits for the next 12 months, would climb to 17.5 times earnings (assuming no changes in forecasts), says Factset. A P/E of 17 would be slightly above the historical average, but it still wouldn’t be extreme, says Jim Paulsen, chief investment strategist at Wells Capital Management.
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