As 2012 approaches, investors have never felt more uncertain. With many analysts increasingly raising alarms about the potential for a European catastrophe, it's easy to think back to 2008 and early 2009 and the big plunges that you saw in your stock portfolios.
But if you let yourself get scared by worst-case scenarios, you'll never invest at all -- and you'll inevitably miss out on some amazing opportunities. No one knows that better than those who missed out on the bargain prices for stocks back in March 2009 -- along with the once-in-a-lifetime returns that followed for those with the courage to invest back then.
Today, I'm looking at five stocks from the Dow Jones Industrials (INDEX: ^DJI) for which the consensus of analysts expects the best returns next year. Those five Dow stocks are as follows:
Expected Sales Growth
Expected EPS Growth
Bank of America (NYS: BAC)
JPMorgan Chase (NYS: JPM)
Alcoa (NYS: AA)
Caterpillar (NYS: CAT)
General Electric (NYS: GE)
Source: Yahoo! Finance. Prices as of Dec. 15 close.
Several of these stocks also made our list of Dow stocks that disappointed investors in 2011, so in general, you can buy shares of these companies at relatively low valuations. But that said, analysts have been known to be overly optimistic before, so there's no guarantee you'll actually see the full extent of these gains.
Even if you shouldn't just run out and buy these stocks just based on their potential for gains, it makes a reasonable starting point for further research. So let's take a closer look at these five stocks.
Bank of America has pulled out all the stops on its cost-cutting efforts this year, having announced massive job cuts of 30,000 workers. But with most mainstream investors expecting the worst, just surviving without a major dilutive event could be a catalyst for a jump in share prices at some point next year.
JPMorgan Chase CEO Jamie Dimon has predicted flat revenues as the troubled economy puts a lid on growth. But some believe the company is setting low expectations now in the hopes of blowing them out later -- and JPMorgan's putting its money where its mouth is with a possible massive share buyback in the near future.
Alcoa has been in such bad shape that it had fellow Fool Robert Eberhard wondering whether it should even be in the Dow. But despite some fears that carbon fiber and plastics could eventually replace aluminum in Boeing (NYS: BA) -made aircraft and autos, replacing the light metal entirely is more a long-term concern than a short-term reality. Moreover, the stock's low price has attracted attention from investors such as hedge fund king John Paulson.
Caterpillar has increasingly tied itself to emerging-market economic growth, especially given the infrastructure spending that many developed nations have put off during the recession. If Europe survives -- or even if it just avoids causing contagion around the world -- then continued growth could push shares upward again.
Nearly three years ago, General Electric did something unthinkable: It cut its dividend. But lately, its payouts have been on the rise, and earlier this week, GE CEO Jeffrey Immelt said he expects to target a 45% payout ratio. Even considering a recent 13% dividend increase, the new policy could lead to even higher dividend payments in the near future.
Will Wall Street get it right?
Those views reveal the bullish position, but bears have a lot of good points as well. And given that analysts are far from perfect, you should take their targets with a grain of salt.
If you're taking the contrarian view by staying bullish on the stock market's prospects for 2012, these stocks have some amazing upside potential. With expectations so low, it wouldn't take much good news to see these five Dow stocks put in strong returns in 2012.
But if you don't want to settle for anything less than the very best idea, go beyond the Dow to find out the one company we've picked as the Motley Fool's Top Stock for 2012. This report is absolutely free, but you'll want to take a look well before you ring in the New Year. Learn about our best idea today.
At the time thisarticle was published Fool contributorDan Caplingerwonders how long his Houston Texans can keep winning. You can follow him onTwitter. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Bank of America and JPMorgan Chase. 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 Fool'sdisclosure policyis always a winner.
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