By MATT JARZEMSKY
Even in a shaky stock market, the blue chips are holding up.
After the Dow Jones Industrial Average dove more than 150 points, or 1.3%, by midday Friday, Johnson & Johnson (JNJ) and American Express Co. (AXP) were still close to joining a growing club–blue chips trading at all-time highs.
Seven Dow components have hit records this year, following eight blue chips reaching that milestone in 2011, the most in any year since 2007, according to FactSet. If both Johnson & Johnson and American Express shares surpass their all-time highs this year, 2012 will boast the second-highest number of blue chips hitting records in at least a decade. Those peaks represent the demand for companies with strong balance sheets, consistent cash flow and shareholder-friendly dividend policies amid economic uncertainty, according to stock investors.
“You’re in an extraordinarily highly charged environment in terms of negative sentiment,” said David Steinberg, managing partner of DLS Capital Management, an investment firm in suburban Chicago. “If they stay in the equity market, investors want to see their managers have bulletproof portfolios. They want the big caps, the companies that have the largest and best balance sheets. This is where people are hiding out.”
J&J, the health-care conglomerate, has surged 7.6% in the past month. It held up relatively well in Friday’s market rout following weaker-than-expected U.S. jobs growth, falling only 0.4% by midday. And on Tuesday, it was trading at a 52-week high of $68.04. The advance has brought it closer to its peak of $72.22 in September 2008. Analysts who cover the company have a median price target of $72, according to Thomson Reuters.
American Express, meanwhile, has climbed 5.7% over the past month, extending a near-25% gain this year, to $58.52 as of Friday afternoon. AmEx closed at its highest level ever, $65.55, in July 2007. Analysts’ median price target on the stock is $64, according to Thomson Reuters.
A price target generally reflects what an analyst thinks the stock should be worth over a 12- to 18-month period.
Some of the companies that have traded at record levels this year did so after sharp rallies, such as Wal-Mart Stores Inc. (WMT), which has risen more than 15% this year to surpass a previous high set in 1999. Wal-Mart was another blue-chip to perform well relative to the stock market Friday, gaining nearly 0.2% to $71.20.
Other Dow components have seen a steady climb upward. International Business Machines Corp. (IBM) saw its highest close in April after gradually extending gains over the past few years.
The fact that some stocks are at record levels isn’t completely surprising, considering gross domestic product–the value of goods and services produced in the country–recovered to pre-financial-crisis levels in the third quarter and has expanded since then, said Barry Knapp, head of U.S. equity strategy at Barclays.
“The equity market is, at least theoretically, supposed to reflect current and expected business conditions of the country,” Mr. Knapp said.
While the stock market has been volatile in recent months, it has regained much of the ground it lost in the financial crisis. The Dow industrials rose in each of the past three years, the longest streak of annual gains since 1999. A 49.5% climb in the Dow since the beginning of 2009 has set the stage for some of its constituents to see their highest prices ever, though-at 12724.87-the average itself is still 10% short of its all-time high close of 14164.53.
Meanwhile, global macroeconomic concerns have kept a lid on stocks’ valuations. The Dow industrials’ price-to-earnings ratio over the past 12 months has edged down to 14.26 from 14.30. Bulls say the relatively low P/E ratio makes stocks “cheap” compared with historical norms.
“Strength begets strength,” said Adam Sarhan, chief executive of Sarhan Capital. “The best advertisement for a stock is its price.”
–Alexandra Scaggs contributed to this article.
-Write to Matt Jarzemsky at email@example.com [ 07-06-12 1436ET ]