The Dow Might Be Up, but Does Your Portfolio Include Any Duds?

April 23, 2007 — -- As the Dow pushes toward the 13,000 mark many investors are happily watching their portfolio grow. But, like any good market, not all stocks are along for the ride.

Home builders, who have seen tremendous growth in recent years, have stumbled since the start of the year. So have some banks and lenders after the subprime lending market fell apart. There has also been some drag in the financial service and retail sectors.

Yet for the most part 2007 has been a good year for the market. And it's not just the Dow Jones industrial average.

"The Dow is racing to a new level and yet the broader market is probably doing better," said Art Hogan, chief market analyst for Jeffries & Co. "As much as we're going to make noise about the Dow, in terms of overall performance, there are other market indices that have been doing quite well."

The Dow, up about 3.9 percent since the start of the year, has traded up 15 of the past 17 trading days and included 34 record closes since the start of October.

But the Nasdaq composite and Standard & Poor's 500 are doing even better, up 4.3 and 4.8 percent respectively since the start of the year. "Overall, the broader market is in rally mode," Hogan said. "It is a pretty broad market rally."

Where there are splits, it doesn't always fall along industry lines. For instance, in the technology world, Intel is having a good year while Hewlett-Packard and Microsoft are not.

The one area that clearly is struggling is home building and mortgage lending.

Home Depot is down 4.5 percent year-to-date and home builder Toll Brothers is down 5.8 percent. Subprime lender American Home Mortgage Investment Corp. saw its stock tumble this year, falling 34 percent since January. Lender Capital One Financial Corp. saw its stock drop 5.8 percent this year.

"The home builders obviously are way, way down. That whole sector has just been decimated. But that shouldn't come as a shock to anyone," said Pat Dorsey, director of stock analysis for Morningstar Inc. "It's a very cyclical business. When you're building homes, you're making a ton of money. But when people stop buying them, you're suddenly sitting on a lot of expensive unsold inventory."

While a lot of the attention has been focused on the Dow, it is not the best market indicator.

"The Dow is such an incredibly narrow group of companies. This was supposed to represent all of America 90 years ago. But America has become a much more diverse economy since then," Dorsey said.

The Dow Jones industrial average is made up of just 30 companies including General Motors Corp., Boeing, Wal-Mart, Home Depot and the Walt Disney Co., parent company of ABC.

The Dow first crossed 12,000 on Oct. 13, 2006, and first closed above that mark on Oct. 19, 2006, according to a spokeswoman for the New York Stock Exchange.

In Monday's trading it started to climb a bit toward the 13,000 mark, but by midday had fallen beneath its previous close, where it stayed until the close.

So is this the right time to sell?

Everybody has his own opinion, but both Hogan and Dorsey said no.

Dorsey said that the blue chip companies in the Dow have been undervalued and that this is a good time to take some of the profit from small caps or foreign funds and buy blue chips.

The other thing to remember about today's records is that they aren't really highs.

The last time the market was this high was six years ago. But that doesn't account for inflation. "When you figure in inflation," Dorsey said, "stocks still have a while to climb."