Why These 3 Dow Stocks Exploded Today
The Dow Jones Industrial Average (INDEX: ^DJI) slipped 0.10% today, but that didn't stop these three stocks from surging:
Today's Price Change
|Bank of America (NYS: BAC)||3.6%|
|Alcoa (NYS: AA)||2%|
|JPMorgan Chase (NYS: JPM)||1.7%|
Why, you ask, did shares of these three companies take off?
After a string of positive economic news in recent weeks, investors are placing their bets on the stocks that could outperform the most strongly should the economy pick up in 2012. Cyclical sectors outperformed the market, with materials, financials, and transportation coming out on top.
Banking stocks like BofA, JPMorgan Chase, and Citigroup (NYS: C) -- a non-Dow component whose shares rose 4.2% today -- are hugely sensitive to economic conditions. Credit quality, demand for credit, and trading results all rely on economic strength. Leverage only increases the importance of these factors.
Similarly, aluminum demand and pricing depends heavily on economic growth. This week, Alcoa reported that it expects global demand for the metal to increase 7% in 2012.
Another issue that sets these names apart is that they are among the cheapest stocks in the Dow. All three got torched by more than 20% last year. Alcoa trades for 10 times earnings, while BofA and JPMorgan Chase trade for 0.5 and 1.1 times tangible book value, respectively. The average Dow stock trades closer to 15 times earnings.
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At the time this article was published Ilan Moscovitzdoesn't own shares of any company mentioned. The Motley Fool owns shares of JPMorgan Chase, Citigroup, and Bank of America. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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