What's Boosting These Dow Stocks in 2012?
LONDON -- While the Dow Jones Industrial Average (INDEX: ^DJI) has risen by just over 3% this year, several companies in the index have done much better by posting double-digit gains.
Three of the best performers since Jan. 1 are Bank of America (NYS: BAC) , which is up by 28%, Microsoft (NAS: MSFT) , whose shares have risen by 15%, and Walt Disney (NYS: DIS) , which has chipped in with a 20% gain.
Recovering from a terrible decade
Bank of America has been a truly awful investment for the past decade, during which time its shares have fallen by more than 80%. Not only was the bank hit badly by the credit crunch, but it now finds itself embroiled in numerous court cases concerning allegations that it has been using fraudulent documents and "robo-signing" to illegally foreclose upon domestic properties.
Bank of America's strong performance this year is mostly due to the recovering American economy. Historically, banks have tended to do quite well in the early stages of a recovery, as many of their doubtful loans turn good. While the American economy hasn't recovered as strongly as many people had hoped, once you look across the Atlantic, the troubles in continental Europe make America seem a much better bet!
Another plus point is that the world's greatest investor, Warren Buffett of Berkshire Hathaway (NYS: BRK.B) , invested $5 billion in Bank of America preferred stock last year. Long-term Berkshire shareholders have seen Buffett pull off many deals like this where the long-term rewards have been excellent despite the initial uncertainties.
(By the way, you may like to know about another Buffett buy. The Berkshire boss has invested more than $1 billion in a famous U.K. name with worldwide expansion potential. Full details are in this exclusive report -- it's free).
The new utility?
Microsoft was once the darling of the stock market, with a price-to-earnings ratio in the 60s just over a decade ago. Since then, the business had been a much better performer than the stock, and today Microsoft's P/E is 11, which is well below both that of the Dow Jones Industrial Average and the S&P 500.
Increasingly, some investors are seeing Microsoft as a steady utility rather than a high-growth software company, and it is priced accordingly, with an above-average 2.6% yield. It's a very solid business, and the bottom line has been helped by the large number of consumers who are now switching from Windows XP to Windows 7 -- having decided to completely bypass Windows Vista.
While Disney has taken a lot of criticism because of the poor box-office returns of John Carter, the phenomenal success of The Avengers has pushed the group's shares up by 10% since the film was released last month. In fact, Disney now has one of the biggest movies of all time on its hands.
Back in 2009, Disney acquired the stable of Marvel characters when it bought Marvel Entertainment, and this deal is now starting to pay off. (As a long-term Marvel shareholder who very reluctantly accepted Disney's bid, I find it no surprise to see that The Avengers has been such a huge hit!)
Marvel has always had the best collection of superhero characters in the business, but the real bonus for investors is that, in the past few years, several lesser-known characters such as Iron Man have been turned into global brands in their own right.
As an independent company, Marvel found it hard to raise the money for some of its own movies, but the sheer size of Disney should allow it to release lots of films based upon Marvel characters -- and keep the profits for itself rather than having to team up with other studios.
Furthermore, Disney can leverage the Marvel brand through its many other platforms, in particular television and theme parks.
Further investment opportunities:
At the time this article was published Tony Luckett owns shares in Berkshire Hathaway. The Motley Fool owns shares of Bank of America, Microsoft, Berkshire Hathaway, and Walt Disney.Motley Fool newsletter serviceshave recommended buying shares of Walt Disney, Berkshire Hathaway, and Microsoft and creating a bull call spread position in Microsoft. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.