The 10 most attractive Dow stocks

John DeFeo,New York — TheStreet.com

The Dow Jones Industrial Average is no longer a bargain, according to one fundamental valuation measure. As of Friday's close, the liability-adjusted cash flow yield (the anticipated rate of return through which all of a company's debts and liabilities are proportionally assumed into the purchase price of the stock) of the SPDR Dow Jones Industrial Average ETF(DIA-N106.66-0.46-0.43%) is 4.03 per cent. Divide this figure by the 2.82 per cent yield of a 10-year U.S. Treasury Note and the resulting margin of safety ratio is a scant 1.43 (a ratio greater than 2 is desirable).

In light of these figures, bond and index fund investors should prepare for total-returns below historical averages. However, "stock pickers" should be able to generate satisfying long-term returns by selecting equities with attractive valuations, strong returns on invested capital and a durable competitive advantage.

Last week we focused on the 10 Dow stocks with the least attractive valuations -- a portfolio of companies that suffer from weak or irregular cash-flows, excessive debt burdens, and possibly, a damaging speculative interest. This week we highlight the 10 Dow stocks with the largest (most-attractive) liability-adjusted cash-flow yields (using 10-year historical data). (more)

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