1100 13th Street, NW, Suite 750Washington, DC 20005202.887.6400Toll-free: 800.544.0155
All Contents © 2017The Kiplinger Washington Editors
The Dow Jones Industrial Average may have been supplanted by the S&P 500 as the best representation of the American economy, but at least in 2017, the group of 30 Dow Jones stocks is out in front.
The DJIA enjoys a 11.3%-to-10% performance lead for the year-to-date, led by 30 companies that are among the biggest names in their industries. We’re talking nine digits worth of market capitalization and tens of billions of dollars in revenues.
There’s a reason why more than $17 billion still sits in the SPDR Dow Jones Industrial Average ETF (DIA), and that’s because the index remains a pretty good collection of blue-chip stocks.
Still, I don’t know that I would suggest buying the entire Dow Jones index.
Just like any index, some Dow Jones stocks are better than others, which means the laggards are helping drag the winners down. And because you’re talking about blue chips with bulletproof balance sheets and long-standing businesses, stock picking here introduces a little more risk than investing in the ETF … but not much when spread across a few names.
Here are the top seven Dow Jones stocks to buy right now:
Prices and data are from the original InvestorPlace story published on August 15, 2017. Click on ticker-symbol links in each slide for current prices and more.
By Aaron Levitt
| August 2017
This slide show is from InvestorPlace, not the Kiplinger editorial staff.
I couldn’t tell you the last time I used cash to pay for something, but as it turns out, I’m not in the majority. In fact, a 2016 Gallup poll showed that only 12% of Americans say they’ve gone completely cashless with their transactions. That leaves 41% of Americans that say they use cash in “some” purchases, while another 46% make half or more of their purchases using greenbacks.
That’s why Visa Inc. (V) is such a great play — because for as ubiquitous as credit card use has become, there’s still so much more room for growth in the U.S. alone, not to mention the more cash-reliant countries Visa operates. In fact, the company says there’s a $17 trillion opportunity to displace cash and checks in the global economy.
Visa is a payment processor, not a bank, so it doesn’t actually do any lending. Visa simply moves money from one account to another along its secured payment network. It functions as a middleman, charging merchants, banks and other institutions a fee every time someone swipes their credit or debit card (I’m sorry … inserts the chip end) and accesses its payment network.
Think of it as a commerce toll road, and a lucrative one at that.
Visa enjoyed a whopping 38% year-over-year increase in transaction volume last quarter, to $1.86 trillion globally. And because Visa is merely a network, it boasts thick margins, such as the 68% non-GAAP operating margins recorded in fiscal Q3 2017.
V stock has sprinted 220% higher over the past five years, almost obscuring the fact that it has more than doubled its dividend over that time. Given how much of the world has yet to go cashless, Visa should grow for years to come and pad investors’ pockets with increasing sums of cash.
Travelers Companies Inc. (TRV) isn’t anywhere near as exciting as Visa, and in fact, is probably the most boring among the 30 Dow Jones stocks. The company operates across three divisions of insurance — personal (home and auto), business (property and casualty), and bond and specialty insurance … and every last one of those segments will bore us all to tears.
Luckily for investors, boring is beautiful.
Insurance companies like Travelers make money from two sources: underwriting and the float. Most people understand the first part — Travelers tries to bring in more in premiums than it pays out in claims. However, insurers don’t just sit on that money. Premiums are typically invested in a wide range of things — stocks and bonds usually — and the insurance company keeps profits from those investments, too.
TRV is successful on both fronts, scoring underwriting profits in nine of the past 10 years and realizing big wins with float investments to boot. As a result, TRV’s annual return on equity has floated between 11% and 15.5% over the past five years.
Travelers has spent much of those profits on shareholders, returning roughly $38.8 billion via share buybacks and dividends since 2006. That dividend has grown, too, up 56% over the past half-decade. And the stock is no slouch, doubling over that time.
Investors looking for steady income, dividend growth and a sound (if snore-worthy) business should look no farther than TRV.
Apple Inc. (AAPL) is an easy buy for a number of reasons. You could buy Apple for the $261 billion in cash and investments that sit on the balance sheet, waiting to be deployed. You could buy Apple for the breathtaking potential of the upcoming iPhone 8. You could even buy it in hopes that future product lines like Apple Home will take off.
Right now, though, I’m in love with the Services business.
Apple’s Services division includes revenues from Digital Content and Services, AppleCare, Apple Pay and licensing agreements. And business is booming. While the iPhone still makes up the lion’s share of the company’s revenues and earnings, Services is quickly turning into a bread-‘n’-butter division.
Last quarter, Services brought in roughly $7.3 billion of Apple’s $45.4 billion top line, second only to the iPhone, which made up $24.8 billion. The division’s sales grew 22% year-over-year, and went from 14% of overall revenues to 16%. And whereas the iPhone includes various manufacturing costs, the digital nature of Services means boffo margins that will continue to drive Apple’s ample cash flows.
That’s great news if you’re an income investor. So is Apple’s 66% jolt to its payout since initiating regular dividends in 2012.
Johnson & Johnson (JNJ) is typically lauded for its role as a steady Eddie dividend producers. That’s why it sits in countless retirement portfolios.
But don’t discount the growth story here.
Johnson & Johnson is meeting the patent cliff head-on by plunging into specialty pharmaceuticals. Today, its pipeline is pretty rich with blood cancer and myeloma drugs that could turn out to be blockbusters.
Moreover, J&J has remained active on the acquisition front, so what it can’t develop on its own, it’s acquiring. For instance, the company spent $30 billion early this year to buy out Actelion and access its specialty lung-disease drug portfolio, adding that to a $4.33 billion buyout of Abbott Medical Optics and $3.3 billion purchase of Vogue International last year.
JNJ also has become a major supplier of medical devices, gearing that division toward the aging baby boomer generation, which should continue to need things like hip and knee replacements as the years roll on.
As that happens, investors can sit back and collect a 2.5% dividend that has been raised annually for 55 consecutive years.
At the beginning of 2016, Caterpillar Inc. (CAT) looked like one of the worst Dow Jones stocks around. Shares had plunged nearly 50% in 18 months as the Chinese economic slowdown hampered the heavy equipment manufacturer.
My, how things have changed.
Sales are strongly on the rebound now that overall global growth has perked up again. China has doled out better growth metrics thanks to Beijing unveiling a variety of stimulus programs designed to boost snagging portions of the economy.
With the world finally grinding forward again, Caterpillar is selling more backhoes, trenchers and bulldozers. Earnings for the second quarter of 2017 rocketed 45% higher year-over-year to $1.35 per share, on sales that charged ahead by nearly 10%. And the company has raised its full-year outlook for revenues and EPS.
CAT stock is a cyclical play, no doubt. But the cycle is far from over.
Walt Disney Co. (DIS) is admittedly hurting right now.
The Mouse House recently sank into the red for 2017 on the back of a mixed fiscal third-quarter earnings report and a number of shakeups meant to address its difficulties in the cable unit, including the blood-letting in ESPN.
However, Disney has a lot going for it.
The company’s Marvel and Star Wars franchises have delivered numerous successes to the studios business, with a new core Star Wars film due out this year, and an Avengers movie coming out in 2018 (as well as Thor: Ragnarok later this year). Those movies not only drive studio revenue, but then filter down to toys and other merchandise.
Mickey’s big score could be its parks and entertainment division. Attendance and spending at its theme parks have surged for years and typically beat analyst expectations. Several parks are undergoing refreshes this year, so amid a growing economy, expect DIS to continue doing quite well on this front.
The question from here is whether Disney’s plan to abandon Netflix, Inc. (NFLX) and start its own streaming service in 2019 will pan out, but that’s a couple years in the future. For now, Disney is waiting on deep cost cuts to make their mark.
I think Disney is at a low point right now — but this is a dip of the buying variety.
Last but not least is another dip to buy: Home Depot Inc. (HD), which is fresh off a post-earnings selloff.
It’s no secret that retail is a mine field right now, with Amazon.com, Inc. (AMZN) taking no prisoners. The best thing you can do is to find stores that are essentially Amazon-proof, and Home Depot appears to be one of those firms.
Home Depot is the country’s largest home improvement retailer, and as such, it commands a massive moat. That stems from the kinds of items it sells. It’s simply more difficult to close your eyes and hope your online order of paints, lumber, granite counter tops and other large items meet your needs — many of these products are things you want to evaluate in person. Yes, you can buy a Kenmore appliance on Amazon … but buying a fridge or washing machine is still a very tactile experience.
And don’t forget that in some areas of the country, you’re required to have a licensed professional install appliances — a service Home Depot provides.
Oh, and the post-earnings selloff in HD stock? That came on the company’s largest-ever quarterly sales, Street-beating earnings and far-better-than-expected comps. That also came after Home Depot raised its full-year earnings outlook far above analyst estimates.
Wall Street is overreacting to all retailers on a level that surpasses prudence and borders on the cruel. Housing is moving forward, and Home Depot is executing. HD isn’t just a good buy — it’s one of the best Dow Jones stocks you can grab.
This article is from Aaron Levitt of InvestorPlace. As of this writing, he held none of the aforementioned securities.
More From InvestorPlace
The 10 Best Dividend Stocks in Tech
10 Cash-Rich Stocks to Buy (And What They Should Buy)
7 Blue-Chip Stocks That Can Still Beat the Street
Skip This Ad »
View as One Page
No thanks, not now