DJIA Components 20 Years After The Crash (MO, GM, IBM, MCD, MRK, MMM, PG, UTX) Part 2

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Astoday is the 20th anniversary of the 1987 stock market crash, 24/7 WallSt. wanted to go back in time to review how the individual DJIAcomponents held up around the time and how they have run to today.  Outof 30 DJIA components today, only 16 of today’s components were DJIAcomponents at the time.  Out of these 16, it looks like only about 7 ofthese components are ‘mostly’ the same businesses as in majoracquisitions or divestitures.  Almost all of these companies have madestrategic acquisitions, so understand that the picture is somewhatdistorted.  Also, these are all rounded numbers and meant to show thegeneral themes only.

We wanted to see how each component did on the day of the crash(Oct. 19, 1987) and compare the price change at December 31, 1987 topre-crash levels.  Lastly, 24/7 Wall St. wanted to compare today’sprice changes to stock prices from the same day before the crash (keepin mind, this is 20-years later, and today’s price is a multiple of thepre-crash 1987 price). 

Read on as we have some exclusive commentary from Elaine Garzarelli,who predicted the 1987 crash.  If you look at today’s multiples to theprices even before the crash, you’d start to even wonder if crashesreally matter for long-term investors and retirement funds on a bigpicture basis.  You’ll also wish you had a time machine.  These DJIAcomponents are broken up into two groups today:

DJIA Comp. (ticker)                Oct. 19     Dec. 31  TODAY
General Motors (GM)                -21%       -5%         3.5X
IBM (IBM)*                                -23.50%  -13.60%    5X
McDonald’s (MCD)                 -16.70%  +1.10%    12.8X
Merck (MRK)                            -12.90%  -13.40%    9.3X
3M (MMM)*                                -20.20%   -7.60%     9.7X
Altria (MO)*                                -14.40%  -15.90%   26X
Proctor & Gamble (PG)*            -27%     +1.40%    20X
United Tech (UTX)*                 -15.60%   -29.70%   20X

DJIA                                          -22.60%    -13.70%    6.2X

We also wanted to ask market pundits of the time how today isdifferent 20 years later, and Elaine Garzarelli was one of the morerecognized pundits that was credited for having predicted the marketcrash in 1987.  This week she responded to an inquiry and told 24/7Wall St.,  "It is a different world today..In October, 1987inflation was 5%, long rates were over 10%, and the S&P500 was 35%overvalued.  In October, 2007 inflation is under 2%, long rates arenear 5%, and the S&P500 is 30% undervalued…"  Garzarelli Research can be accessed at www.garzarelli.com to see more detailed takes on her research.  Thanks for the exclusive comments, Elaine.

If you wish to read the PART 1 article, you can access it here to see the other components at the time compared to now.

Jon C. Ogg
October 19, 2007

* indicates transformed operations

** all figures calculated only once and are rounded numbers