Markets
DOW 36,000 -- Unrepentant
Five years after their best-selling book, James Glassman and Kevin Hassett sill believe in the case they made -- stocks are cheap and will continue to make money.
By James K. Glassman, Contributing Editor
From Kiplinger's Personal Finance magazine, December 2004
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A good example of a Dow 36,000 stock is RPM International, which makes Rust-Oleum and other protective coatings. It's a boring business but very profitable. "Has the market rewarded RPM for consistent growth? Not nearly enough," we wrote in 1999. Since then, the stock has returned 74%, including dividends. RPM still appears to be a bargain, with a dividend yield of 3.5% and a P/E of 14.
From 777 in August 1982, the Dow rose to 5,216 in 1995 and 10,000-plus in 1999. And that's where it has stalled. Why? Mainly because earnings have fallen -- the result of the tech bubble, the recession, the attacks of 9/11 and the overzealous political reaction to corporate-accounting scandals. Again, I think this setback is temporary. The fact that risk premiums have stayed relatively low and P/Es have been robust is evidence that the Dow 36,000 theory remains intact. As the economy continues its recovery, stock prices should get back on an upward track.
Do I have any regrets about the book? Well, yes. The title. Kevin, a distinguished economist who has served with the Federal Reserve, thought we should have called it A Treatise on the Declining Equity Risk Premium. Maybe something in between.
Columnisst James K. Glassman is a fellow at the American Enterprise Institute, host of TechCentralStation.com and chairman of Investors Action, an advocacy group for small investors.
DOW 36,000
The Portfolio
The 15 stocks highlighted in Dow 36,000 have, as a group, performed handsomely.
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* For the period 10/1/99 - 10/14/04
Sources: Bloomberg; copyright © 2004, Standard & Poor's, a division of The McGraw-Hill Companies, Inc. All rights reserved.