Cramers Predictions for Stocks of Dow for 2007 Notes: The Coming Year w/ Charts-Arizona-Phoenix-

Note taking on my part for my own reference during the year. Original article at:

The sin of not being bullish enough is not one that I have been guilty of very often, but 2006 found me on that side of the fence when I did my annual predictions for the Dow Jones Industrial Average components. I was just about bullish enough on the average itself, though: The Dow closed at 12,471.32 on Dec. 19, just ahead of my 12,470 total.

Seems comical now, but at the time, I was shocked at how bullish that forecast seemed. Now I’m only slightly — and pleasantly — more surprised at just how positive I am on the Big 30’s prospects for the next year now that I’ve sat down and quantified it.

You see, I expect the Dow to grow about 17% in 2007, to 14,548. Read on to find out why.

3M (MMM - news - Cramer’s Take - Rating): This one’s not lent to easy analysis. The company dropped a bomb in the second quarter and then made a nice recovery in the third, but who knows what could happen with this odd agglomeration of companies. I don’t trust management to deliver, but the company itself perks along nicely. I bet it will finish unchanged next year. There’s just not enough to work with here and a CEO who is too unseasoned to take the company where it has to go.

Alcoa (AA - news - Cramer’s Take - Rating): This one’s easy. It won’t be public by the end of 2007. This management team has had its chance. Alcoa has to be the only major mineral company that’s done absolutely nothing during this amazing commodity boom. Someone else will get a chance to make something of Alcoa in 2007. I see the company going out north of $40.

Why it makes sense: Sure, there are rumors of an AA takeover or leveraged buyout, but those rumor-mongers are looking at the wrong suitors. Don't let one good quarter from AA fool you. This is still one of the worst-run companies in the U.S.

GE is one of the best companies at managing industrials in the history of business. That is what AA needs. There is nothing fundamentally wrong with the aluminum business -- it's just that new leadership is necessary.

GE is in the process of selling the plastics business, which is a tough industry. GE can easily use the proceeds of the plastics sale to buy AA, although it has plenty of resources without the plastic sale. The deal would be immediately accretive to earnings.

Why it might not happen: GE is simply too big and may be looking to slim down rather than add on. There are other businesses beyond plastics that the company also needs to make some decisions about, namely NBC Universal.

Altria (MO - news - Cramer’s Take - Rating): Nobody seemed to notice, but the 2nd U.S. Circuit Court of Appeals, one of the most important federal courts in the land, pretty much destroyed the right of plaintiffs’ lawyers to put these disparate class actions together, like the one that is haunting Altria in Brooklyn, N.Y., involving light cigarettes. When that case is overturned, Altria will move to break into three parts: Altria Domestic, Altria International and Kraft (KFT - news - Cramer’s Take - Rating). All three will benefit from not being with each other, particularly Kraft. I see these three parts getting you to $110 rather quickly.

* For the past two years, Altria executives had wanted to split off Kraft, of which it owns more than 88.6%. The only problem: a lawsuit claiming the tobacco industry marketed light cigarettes as less dangerous than their non-light counterparts. With no trial likely to occur in 2007, that means Altria's management will probably pursue a split-off of Kraft. Previously, it had been reluctant to do so out of fear the Schwab case, if certified, could leave them charged with fraudulent conveyance.

OBSERVATION: Reluctant yes, but now with possibly only this year to do the spin off they will probably make haste !

Altria, which owns Philip Morris USA and Philip Morris International, plans to announce on Jan. 31 the exact timing of its divestiture of a controlling 88.8 percent stake in Kraft Foods Inc. In a research note, Citigroup Analyst Bonnie Herzog said she believed the Kraft divestiture could result in the stock rising by 5 percent.

Once the company announces the timing on Jan. 31, it would be expected to distribute the shares as a dividend to Altria stockholders within 120 days. Analysts expect the company to also eventually break apart its domestic and international cigarette units.

This company seems to put on a quiet 20% every year, at least, since Ken Chenault took it over. He’s a quiet exec, doing his job, not seeking the limelight — and what a remarkable job he’s done. Next year will be still one more great year, because the credit-card cachet never abates and the company will find new ways to slice its brimming customer base. My price target on this one: $72.

I own American International Group for Action Alerts PLUS because people don’t understand that the company is now Mr. Clean, certified by the new governor of New York before he left his state attorney general post for the governor’s mansion. So what is this 12% grower with a terrific business in China doing still selling at 12 times earnings? Some of the cause is the perception that the regulation has hampered its business. Wrong! The other drawback: the perceived selling overhang of defrocked Maurice Hank Greenberg. I don’t care about that, either. Three multiple points tacked on to the current price-to-earnings ratio plus an upside surprise owing to no major tsunami or hurricane payoffs should lift the stock to $95.

So AT&T finally gets to merge with BellSouth (BLS - news - Cramer’s Take - Rating) and the result is a firing binge that explodes earnings without denting customer service. Unlike Sprint (S - news - Cramer’s Take - Rating), AT&T knows how to do a deal. I see the combined company adding 6 points to T’s price as the synergies flow through and the dividends increase.

Boeing (BA - news - Cramer’s Take - Rating): In 2007, I believe Airbus will admit the sad truth that it can’t make the big planes it promised so many. That would allow Boeing to become something it has always wanted to be: a monopolist. And what a great time to be a monopolist! Labor costs are down, raw material costs have stabilized and prices can be raised. Some think this stock has peaked; they ain’t seen nothing yet. I like the prospects for a 30% increase and a price of $120, made up in big increments at the reporting of each quarterly upside surprise.

They killed CAT this year because of housing. I believe the first half of 2007 will look much like the last half of 2006, but this time with the engines business stalling out, too. That’s because a change in environmental laws led to pullthrough of orders into 2006 in that important market. That, plus the leveling of oil at a price that doesn’t spur enough alternatives, will weigh on Caterpillar. But the second half will be more bountiful because housing will have bottomed and the engine orders will flow back. Look for nothing until July and then a quick spurt to new highs, perhaps even $90, as the raw cost of steel, now that tariffs are removed, flows through to the bottom line.

Citi Needs a new leader Citigroup (C - news - Cramer’s Take - Rating): The rumblings of Citigroup will be heard, and Chuck Prince will be gone by year-end 2007. The market thirsts for a big-thinking banker at the helm of this ship to augment the new operations chief, and the market will get it. I believe Citigroup will trade to $63 on improved management and the concomitant prospects.

Coca-Cola (KO - news - Cramer’s Take - Rating): The new management at Coca-Cola actually has something going for it — not something that can take the company up too much, but certainly something that can take it to the mid-$50s on solid single-digit growth and a buyback that never quits. That dividend could be increased mightily, too. How about $55 at this time next year?

DuPont (DD - news - Cramer’s Take - Rating): This one’s a quandary. The stock quietly moved up almost 20% when oil moved down, and its earnings flowed up because of price increases that stuck. That raw-cost win might not be repeated throughout 2007, but it will still help during the first half of the year. The stock also just got too cheap, with that juicy 4% yield that now gives you 3% because of price appreciation. I see only a 10% gain for DuPont in 2007, and that might even be repealed by year-end. How about $53?

has become the mutual funds’ favorite play, even though so many other oils are so much cheaper, including Chevron (CVX - news -Cramer’s Take - Rating) and ConocoPhillips (COP - news - Cramer’s Take - Rating). Still the multiple’s only 12, with 9% earnings growth baked in at these oil prices, so let’s say the stock adds on another 5 points. I know, disappointing, but what a run! Eighty’s about all it can muster in 2007, though, without oil going through $70, and I don’t see that happening.

General Electric (GE - news - Cramer’s Take - Rating): This one finally got legs when it decided to boost the dividend much more than it has for the past five years, 12% vs. 9%. I believe this is just the beginning of the big boosts, and that the company can take its yield to 4% without much problem, particularly when it unloads plastics, gets the benefit of all the Zucker-led changes at NBC and quits the inanely large buyback that did nothing for shareholders. Still, the stock’s not cheap: I’d take GE to $43 and then declare victory.

General Motors (GM - news - Cramer’s Take - Rating): GM had its chance. It had the single greatest turnaround manager in the world on its board, Jerry York, and it spurned him and Tracinda. That said it all. This stock was headed to $40 with the man who turned around Chrysler and IBM on board. Now it is going nowhere, nowhere at all. I believe this stock will close at this level, give or take a handful of points, next year at this time.

This name has been stalled ever since it became clear that Dell (DELL - news - Cramer’s Take - Rating) was back. But that’s silly. The biggest catalyst in H-P’s PC-related history is about to occur: the shipping of Vista. That will take this stock to $50 on the explosion in earnings, thanks to the best-kept secret of this great company: It makes the cheapest and the best PCs. Management is just beginning to get this ship going; it isn’t about to run aground in 2007.

Home Depot (HD - news - Cramer’s Take - Rating): I don’t like Home Depot. I don’t like its management. I don’t like how it has made the stores into depressing places that drive me to Costco (COST - news - Cramer’s Take - Rating) and Lowe’s (LOW - news - Cramer’s Take - Rating), even though they are much farther from my house than the Big Orange. Yet even Bob Nardelli can’t stop the turn in the housing cycle, and this primo beneficiary could rally a quick $10 on the turn up. That’s right, 10 points, making it one of the better performers in the Dow in 2007. I still like Lowe’s better, though, and Sears (SHLD - news - Cramer’s Take - Rating) much better.

Honeywell (HON - news - Cramer’s Take - Rating): Will someone tell me why Honeywell is still in the low $40s, even though its businesses are getting better and better and it just gave you the big boost in the dividend? That makes no sense to me, no sense at all. Plus, CEO Dave Cote has finally been able to get his arms around all of the trouble he inherited at what had become a very dysfunctional company. I see this stock going to $52 by this time next year as deals, divestitures and cash flow make the worth here obvious, at last, to the market.

Only Hewlett-Packard and Microsoft (MSFT - news - Cramer’s Take - Rating) will benefit more than Intel from the launch of Vista this year. Of course, Intel should be the biggest beneficiary because it has plenty of inventory to work off. But AMD (AMD - news - Cramer’s Take - Rating) is ahead of the pack, and Intel has the same bad management that has plagued it for half a decade. With this group, you are lucky to see $25-$26, but 2007 will be a lucky year, so I bet we’ll get that. Too bad this company doesn’t have the old team running it; I would put a $30 handle on it if that were the case.

Comment from Tech Predictor Arty
2007 will be the turn-around year for Intel vs. AMD. With its new cores and processors, Intel will
stop losing market share to AMD and will begin regaining some lost ground.

Watch for major changes at Nvidia. If Nvidia isn't acquired outright by a larger company, it will begin
changing directions in a major fashion to diversify away from GPUs. Nvidia's recent acquisition of
Portal Player is an important clue. AMD's acquisition of ATI is radically altering the GPU market. PC
processors with integrated graphics (coming within two years from AMD) will squeeze the market
for discrete GPUs and graphics cards, limiting it to only the most performance-minded users. Nvidia must change to survive.

IBM It’s still cheap at $95, and it will be cheap at $110. That’s because the multiple here just can’t catch an elevation much beyond a point or two despite the many upside surprises I see for the company this year, including some just from the weaker dollar and others from some very big consulting wins. I like this company and I like the sector, but like everyone else I would like to see some serious back-to-back strong quarters. I bet we get them in 2007.

Johnson & Johnson The Democrats won’t be able to stop the Medicare Part D bounty for the drug companies; the darned thing is too popular. Add to that the fact that the consumer portion of J&J picked up the languishing consumer products division of Pfizer (PFE - news - Cramer’s Take - Rating) and knows how to market those goods far better than that once-great former owner. That’s why I have been stocking up on J&J for Action Alerts PLUS; I believe 2007 will be a breakout year for it, one of America’s best-managed companies. I see an explosion of earnings from the Pfizer products and a multiple that expands with it, and I believe they’ll combine to take the stock to $80. That’s a big, big move worth riding much higher.

Maybe in 2007 we will remember why we liked Jamie Dimon so much. We sure haven’t seen anything yet out of the man. His company’s stock has languished even as the stocks of other banks, particularly investment banks, have made a good move. I believe the lag in JPMorgan is caused by the combination of the worst of banking and the least impressive work of investment bankers who carry themselves as if they were the best of both. That’s a lethal combination of arrogance and not as much competence as they think they have. I see the stock only advancing to $52, max, unless the company gets a bid, which certainly could happen if you are a European bank. I just can’t see Dimon going for it, because he is pretty sure of himself — too sure to be sure!

McDonald’s — Chronically undervalued McDonald’s MCD Even after the move in McDonald’s, there’s more ahead, maybe much more. I believe this company suffers from chronic undervaluation, given how much better it is than all of its competitors. I see it giving shareholders ever-higher dividends and receiving a much higher multiple on weak-dollar-related earnings. I see the company trading to $55. I’d love to buy this one.

This one has made its move, and while I would be inclined to name it best of breed and believe that it can climb still higher, the breathtaking run from $25 on the cessation of Vioxx bankruptcy worries doesn’t leave it much more room. Plus, it lacks anything really huge to make up for patent expirations. I would be surprised if it can escape the $40s, but a weak dollar could take Merck’s earnings up to where $50 is a realistic target.

Microsoft (MSFT - news - Cramer’s Take - Rating): It’s up nicely, but it isn’t done. With Xbox drain over and Xbox gain ahead, with Vista at last shipping and with the cash flow proving big even without it, I think Microsoft won’t quit until it’s at $35. There have been big changes at Mister Softee over the past year, and I believe this company has gotten hungry again. It has also at last put behind it the fears from antitrust litigation. Steve Ballmer has grown into his job and will fight for shareholders, of which he is a big one.

Annoying DRM features in Microsoft Vista will prompt some users to hoard older versions of
operating systems that lack DRM. Windows XP, Windows 2000, maybe even Windows 98SE will
make a comeback. Virtualization will make it easier to maintain multiple OS installations on one PC
and switch between them. People will revert to an older OS to copy or download DRM-protected

Pfizer (PFE - news - Cramer’s Take - Rating): This one is my least favorite stock in the Dow. It’s just a nothing company that’s too big and has so little that’s exciting about it that if it weren’t so low, I would say it would go even lower. But the yield will support it, and I suspect it will finish 2007 right around where it’s trading as 2006 ends. New CEO, same old problems. What an uninventive company

Ooh, this one’s tough here. You need the economy to slow dramatically to get it moving, and if that happens, the Federal Reserve will cut interest rates, so no one will want P&G anyway. This is the curse of a great American company; it just can’t get anyone to like it enough to take it higher unless the economy’s slow and the Fed is tightening, the secret of its success since its bottom in the low $50s. I peg it at $67 for 2007, plus or minus. The company deserves better, but it is trapped by macro considerations.

United Technologies (UTX - news - Cramer’s Take - Rating): It’s in the first year of a new CEO. It has already shaded down for the next year, and I believe its outperformance vs. General Electric (GE - news - Cramer’s Take - Rating) has at last come to an end. Plus, while its business overseas remains strong, it’s the 50% of the business that’s domestic that I don’t care for. I believe that as we get closer to the presidential election, things will only grow worse for this company. I peg it stalled at $62.

Verizon (VZ - news - Cramer’s Take - Rating): When the Fed starts cutting rates, that 4%-and-change yield on Verizon is going to look pretty darned good. The company’s making its move in video with unclear results, but its wireless business is just plain on fire. And after being a tough and competitive business for so long, Verizon is a darned good one, thanks to the mergers, with barriers to entry for its competitors that will never be surmounted in our lifetimes. That means Verizon has a chance to grow earnings, grow dividends and grow its businesses. Still, I’m going with AT&T for appreciation, and I believe Verizon will creep higher 3 points, max.

Comments: Good analysis puts it that Verizon will make an aquisition in the managed networks area.

Wal-Mart’s Wal-Mart. It’s staying at $50 or below as long as Lee Scott and his culture of de-aspiration continue to rule. This company will still be picked apart by all of those who know its number is up, whether it be Target (TGT - news - Cramer’s Take - Rating) or Costco (COST - news - Cramer’s Take - Rating) or J.C. Penney (JCP - news - Cramer’s Take - Rating). An awful company and an awful stock. I think it will go to $50 at year-end on rumors that Scott’s out.

Walt Disney (DIS - news - Cramer’s Take - Rating): Doesn’t have the properties that afford much growth, but it can keep turning out hits and expanding the premier international entertainment franchise. At some point, this company’s going to have to ask itself why it is public. In the interim inertia, the pipeline for television, a weak dollar that will bring more tourists to its expanding theme parks and animation, the cheapest form of movie-making, leave me thinking $40s is a legitimate goal.

--------- subsequent to this arty another one was found that gave addition light on the issue----------

Companies don’t need the stock market anymore. Sure, investors love it when the market goes up, and those who own stocks make tons of money, as they did in 2006, a year that defied every skeptic in its march to record highs. But for many corporations and their managements, the stock market is just plain unnecessary, atavistic even. They don’t need the money the market can provide, and they hate the hassle of having a public stock. That’s why, in 2006, we got a record number of takeovers, mergers, and private-equity buyouts. And that’s why I think 2007 will be even bigger than 2006.

After the bountiful year every index had—despite endless Federal Reserve tightenings, a crashing dollar, an auto industry that could be in the crisis of its life, an oil price that wouldn’t quit rising, and a housing market that still can’t find bottom—you would think that 2007 would be a year of chickens coming home to roost. Although many of those problems remain, particularly Detroit’s unraveling, I don’t think they can stop 2007 from being a good year any more than they could stop 2006.

Here are some rosy yet realistic predictions for next year, a year in which the S&P 500 could rise as much as 15 percent if these factors play out this way. That prospective run won’t give you the kind of money that Morgan’s John Mack, Lehman’s Dick Fuld, Bear Stearns’ Jimmy Cayne, or Goldman’s Lloyd Blankfein figure to make in another boom year for deals—but it could create a nice windfall over and above a prosaic paycheck.

First, as I’ve noted in this space before, we’re beginning to have an equity-supply shortage of mammoth proportions. For as long as I can remember, companies came public to tap the equity market, not to avoid it. They were perennially growing and in need of capital for hiring and building. But now the great American businesses are swimming with cash, far more than they need, thanks to record profit levels. That’s why 29 of the 30 Dow Industrials are buying back billions of dollars’ worth of shares instead of floating more equity to take advantage of higher prices. Yet hedge funds, mutual funds, and other institutional investors need stocks to invest in, and the great returns of 2006 are luring individuals back into the market for the first time in a half-decade. That combination, plus management’s newfound love affair with anything that removes them from the market, causes an equity scarcity, so the remaining stocks get bid up in value.

Second, for those managers who hate being public, and those under attack from hedge-fund managers demanding better performance, there’s plenty of money available to pay for going private. We saw, in 2006, the beginning of a new phenomenon: the rise of private-equity funds, pools of capital put together to buy companies, as drivers of higher prices. These funds are taking advantage of a chronic undervaluation of many companies, including ones worth $20 billion or even $30 billion. The undervaluation is a by-product of Wall Street’s love affair with hyperoxygenated growth, the kind that only smaller and midsize companies can provide. Mutual and hedge funds spurn companies with anything less than 10 to 15 percent growth, something that most old-line companies can’t provide. That leaves the stocks of hundreds of corporations, including many steady but unspectacular growers, such as big casino, semiconductor, hospital, and restaurant chains, unloved by the market.

A handful of savvy private-equity buyout firms, like Silver Lake, Bain, Texas Pacific, Kohlberg Kravis Roberts, and Blackstone, have started to capitalize on this phenomenon. They approach managements fed up with their cheap stock price with an elixir: buy out the equity holders with a massive infusion of cash (backed by newly minted corporate bonds that take advantage of record-low interest rates). Then the new owners and management can revel in all the cash these companies generate and no longer have to share it with ungrateful shareholders. I see many candidates for private-equity buyouts in 2007, including Hershey, Barnes & Noble, Applebee’s, and KB Home, none of which get the rewards they deserve in the public markets.

Third, companies are getting a sense that the clock is ticking on many mergers now blessed by a Republican-controlled government. The Democrats’ midterm-elections rout was a reminder to CEOs that they’d better get their deals done now, before the White House changes hands. Right now we have a Justice Department antitrust division that basically serves as an adjunct to the Commerce Department, but that goes out the window if the Democrats—who actually have the audacity to care about things like monopolies and anti-competitive behavior, even if it means lower stock-market prices—take over all three branches of the federal government. Look for the airline companies to team up (United and Continental, as well as US Airways and Delta, have already jump-started that process). And look for giant mergers in telecom, oil, drugs, and health care, all areas the Democrats are likely to scrutinize. I like Qwest, Bristol-Myers Squibb, ConocoPhillips, UnitedHealth, and Humana as companies that could be snapped up by rivals before the Democrats can stop them.

Fourth, pundits come on the air all the time and fret about how a weak dollar could hurt the stock market. Ignore them. The weak dollar causes our companies to get acquired at bargain prices by companies in countries with stronger currencies, especially those denominated in euros. Look for major companies like U.S. Steel, Alcoa, Colgate-Palmolive, Weyerhaeuser, and the stumbling Yahoo to be bought in 2007 by overseas entities taking advantage of a declining greenback.

Finally, the ongoing decline in housing and the worries about car manufacturers should cause the Federal Reserve to cut its base interest rate to as low as 4 percent, from its current 5-plus level. That will bring more money into the stock market, where the rates of return will make the risk-free rewards of cash seem paltry.

How can you take advantage of all of this? You can take the shotgun approach and buy your favorites among the above candidates for acquisition. But I think even better is the rifle approach. Pick, to extend the metaphor, the original arms merchants for all of these deals: the investment banks. The teams from Goldman, Morgan and the like will all get fat vigs from these deals.

Some would say it’s tough to come into this market after its double-digit returns. To them I would say, it’s only now that we have gotten back to where we were six years ago. In other words, you ain’t missed nothing yet.