The Dow's Been on Fire in 2012, but Is It Expensive Now?

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Although it lost 0.47% (61 points) this past week, the Dow Jones Industrial Average (INDEX: ^DJI) is off to a sizzling start in 2012. Through Feb. 3, the index was having its best start to a year since 1997.

In fact, since the widely followed index of U.S. blue chips bottomed out in March 2009, it's nearly doubled.

Interestingly, because corporate earnings have been so strong in the past few years, that run-up hasn't translated into sky-high price multiples. As the following table shows, the Dow index trades at a reasonable price-to-earnings multiple. Returns on equity have been moving up, while debt loads have been coming down:

 

 2008200920102011Current
P/E16.218.413.713.013.2
P/B3.12.72.52.32.4
ROE16.8%14.5%15.8%15.7%16.3%
Total Debt/Equity97.1%84.3%79.4%81.6%78.7%
Price change of Dow-tracking SPDR Dow Jones Industrial Average ETF (NYS: DIA) (31.93%)22.47%13.97%8.04%4.78% (ytd)

Data from S&P Capital IQ; calendar years used. Price data from Morningstar.

That's largely good news for followers of the market's most popular index. Although I prefer other indexes (because of the Dow's price-weighting), and although uncertainty in Europe persists -- as we saw yesterday, when the index had its worst one-day performance of 2012 -- the Dow seems reasonably valued right now. That's a good sign for long-term-focused investors.

Speaking of the long term, there's one Dow component that Fool.com's consumer-goods expert believes is set to dominate emerging markets over the next decade and more. It's detailed in a new free report, which you can access for free by clicking here.

At the time this article was published Fool.com managing editorBrian Richardsdoesn't own shares of any of the companies mentioned. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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