The Dow Jones Industrial Average (INDEXDJX:.DJI) was one of the modern world’s first market indicators. Today, the price-weighted index is comprised of 30 large publicly-owned companies based in the United States. Year-to-date the blue chip index has returned 11.02% to shareholders, while the S&P500 has returned 16.03%, and the NASDAQ has returned 21.98%. Since 1900, the average annual return for the Dow was 9.4%, 4.8% in price appreciation and 4.6% in dividends. Over the past 25 years, the Dow's returns have averaged 10.5% annually, 7.7% price appreciation and 2.7% in dividends. Moving into the third quarter of 2012, the Dow has beaten both the 100+ year average returns and the 25 year average. This article will examine the top three performers on the index since the start of 2012.
Bank of America Corp (NYSE:BAC)
Bank of America has been the best performing stock on the Dow, and has returned 67.09% year-to-date. Returns haven’t been as pleasant for the multinational banking and financial services firm over the past few years, though. After acquiring Countrywide in 2008, Bank of America was tied to the company's $2 trillion in mortgages.
Consequently, this massive amount of mortgages was one of the main drivers that caused the company's stock to plummet quite severely after the most recent housing market crash. Consider these statistics: Bank of America is still down 81.6% over the past half-decade, with most of these declines coming between 2007 and 2009.
Interestingly, it appears that being hit the hardest by the financial crisis may have given Bank of America the most room to improve. Warren Buffett appears to think so: read here to see why. Since the beginning of 2012, Buffett has increased his position by nearly 30 million shares. From a valuation standpoint, Bank of America is trading at 10.19 times their earnings, and 0.46 times their book value. The bank has grown revenues at a five year compound annual growth rate (CAGR) of 5.2%, they have an ROA of 0.51%, and an ROE of 4.95%.
The Home Depot, Inc. (NYSE:HD)
Home Depot, the world’s largest home-improvement retailer, is the second best performer listed on the Dow, returning 41.46% to shareholders year-to-date. Home Depot has battled with Lowe’s Companies, Inc. (NYSE:LOW) for market share for years, and seems to be pulling away from their closest competitor. Which stock is a better buy?
In their most recent quarter, Home Depot grew sales at 1.7% and improved earnings by 12% through decreased SG&A expenses, which led to higher operating margins and earnings. Looking at the valuation, the company's stock is trading at 21.38 times earnings, and has an EV/EBITDA of 10.88. Home Depot’s revenues have grown at a five year CAGR of -5.0%, they have an ROA of 10.72%, and an ROE of 23.84%.
Despite a disappointing economic recovery, Home Depot has still impressed investors with improved sales and efficiency. While the largest home-improvement retailer makes a good core investment in most portfolios and offers exposure to an upside in housing, it is trading near its 52-week high of $60, and is a little expensive for our taste.
The Walt Disney Company (NYSE:DIS)
Only behind Home Depot and Bank of America, The Walt Disney Company has seen their stock price grow 40.53% year-to-date, the third best return out of companies listed on the Dow. The Walt Disney Company is more than just children's movies and theme parks; it also operates ESPN and ABC, two of the U.S.'s most popular media networks.
In 2011, ESPN and ABC accounted for 46% of Disney's revenues, while their parks accounted for 29%, and their studio entertainment branch accounted for 16%. ESPN is the clear leader in sports TV, and recently locked in a deal with Monday Night Football that gave them rights to broadcast the weekly event for $1.8 billion a year.
Looking at the stock's valuation, Disney trades at 17.42 times their earnings, and has an EV/EBITDA of 9.76. Their revenues have grown at a five year CAGR of 3.6%, they have an ROA of 7.53%, and an ROE of 14.54%. Disney has excelled in all of their segments and continues to create value for shareholders. These high quality shares continue to gain momentum and are a good pick for short-term investors.
What's on Hedge Funds' Minds?
The value of Bank of America shares held by hedge funds decreased $565 million during the second quarter of 2012. These declines coincided with nine hedge funds liquidating their shares in BAC, including Brian Stark, Michael Messner, and Robert Bishop.
During the first quarter of 2011, Home Depot had 38 hedge funds invested in their company valued at $1.6 billion. By the second quarter of 2012, only 35 hedge funds still had interest - an amount valued at $1.4 billion. Some of the most prominent managers still involved in the stock are Ken Griffin, Cliff Asness, and Steven Cohen.
Looking at Disney, the number of hedge funds remained the same at 40 from the first to the second quarter of 2012, but the value of shares held by the funds increased $600 million. For a longer look at how the hedge fund industry is valuing Disney and the rest of the Dow's top trio, continue reading here.