Is the Dow Record-Bound?


When the Dow Jones Industrials dropped below 7,000 in early 2009, many investors thought the venerable market measure might never return to its glory of 2007, when it seemed to set new highs all the time, eventually topping out above 14,000 before its historic plunge in the financial crisis. But with the latest push higher in the stock market, the Dow is within 400 points of its closing high of 14,164.53, set on Oct. 9, 2007. Will the Dow get there?

Already, we've seen new record highs among a number of stocks within the Dow. Disney hit a record high just yesterday as the company continues to build its multimedia empire, taking full advantage of its extensive library of content while also expanding and developing new content through smart acquisitions of content providers like Pixar, Marvel, and, most recently, Lucasfilm. So long as people crave entertainment, Disney has the capacity to help pull the Dow higher.

3M also bettered its former record yesterday in anticipation of today's earnings report. Although some question whether the company still has its innovative streak, the conglomerate has done a good job of growing through acquisition with timely purchases of businesses with great potential. Its most recent buyout of Ceradyne, for instance, should expand 3M's reach in defense and other industries where the ceramics-maker plays a key role.

For Travelers , a new record high earlier this week came less from absolute business strength than from relief that a bad situation didn't turn out much worse. After Hurricane Sandy, analysts dramatically cut their earnings estimates for the property and casualty insurer, with total industry costs initially estimated at up to $50 billion. Yet when the company reported earnings, its results turned out much better than many had feared, and the higher premium that Travelers has been able to charge in response to Sandy and 2011's Hurricane Irene will help the company boost results for years to come.

Coming off their highs
Several other stocks have hit new all-time highs in the past several months, even though they've pulled back somewhat from those levels. Chevron broke through its former record back in September, and the stock is still within a few percent of that record level despite its recent pullback. In order to press higher, though, Chevron needs to combat falling production levels and find new ways to grow. Fortunately, with so many energy prospects around the world, finding that growth won't be as hard as it was before unconventional production methods like hydraulic fracturing opened up new opportunities.

IBM has also set record highs, breaking through $210 per share in early October and rising back toward those levels yesterday after a strong earnings report. With the tech giant aiming for $20 per share in earnings by 2015, further records appear likely if the company comes close to achieving that goal, and so far success in transforming its business into a high-margin IT services powerhouse has helped bring about the earnings growth it needs.

For Wal-Mart, which topped out in early October with a record high, the pullback over the past few months has been more substantial, with the stock now fully 10% below its highest levels. The company's scandal in Mexico didn't initially derail the stock's advance, but when the investigation surrounding the incident extended to other international markets, investors grew more concerned. Moreover, its attempts to expand rapidly in China resulted in reduced profitability, forcing the retail giant to slow down its planned growth there. In order to claw back its lost ground, Wal-Mart needs to reassure investors that it can get past its scandals and, most importantly, avoid falling back into the same-store sales declines it posted for years before finally getting things turned around in 2012.

Go for a record
In order for the Dow to reach new highs, it will likely need more help from the companies that have been hitting all-time highs. Be sure to keep your eyes on these stocks in particular as you watch the market's attempt to set a new record.

Among all these companies, Disney arguably has the easiest path to growth. With its amusement parks around the world, its vast catalog of characters, and its monster collection of media networks, much of Disney's allure for investors lies in its diversity. Find out whether Disney is still a buy even at record highs by reading our premium research report on the stock. This report includes the key items investors must watch, as well as the opportunities and threats the company faces going forward. Click here now to claim your copy today.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends 3M, Chevron, and Walt Disney. The Motley Fool owns shares of International Business Machines and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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