All 30 Dow Jones Stocks Ranked: The Pros Weigh In
The Dow Jones Industrial Average is made up of 30 blue chips that are tops in their industries. But some Dow Jones stocks are better opportunities than others.
The Dow Jones Industrial Average is having a fine year in absolute terms, but investors may be forgiven if they're underwhelmed by the blue-chip barometer's both recent and relative underperformance.
True, the elite bastion of 30 stocks is up 11% for the year-to-date – and 12.5% after including dividends – or well above its long-term average annual return. On the other hand, the Dow is lagging the S&P 500 by 5 percentage points on a price basis so far this year and has lost almost 5% since its mid-August peak.
The Dow is lagging the broader market for the same reasons it has more recently stalled out. For one thing, it's a highly concentrated group of stocks, many of which benefited disproportionately from last year's pandemic. Those companies are now fighting against difficult year-over-year comparisons.
Other Dow Jones stocks have faced sort of the opposite problem. Thanks to their status as recovery plays, a number of these names put up outsized gains through the first half of the year, but eventually cooled off after the spread of the COVID-19 Delta variant renewed concerns about global growth.
Meanwhile, Dow stocks across several sectors are grappling with cost inflation, supply-chain issues and other macroeconomic headwinds as the world emerges from the pandemic era. Overly optimistic expectations have also played a part.
The end result is that some Dow Jones stocks having disappointing years look like stone cold bargain buys, analysts say. On the other side of the trade, blue-chips putting up outsized gains look uncomfortably overpriced.
So to get a sense of what Wall Street thinks as we head into the final quarter of 2021, we screened the Dow by analysts' consensus recommendation, from worst to first, using data from S&P Global Market Intelligence.
Here's how the ratings system works: S&P surveys analysts' stock calls and scores them on a five-point scale, where 1.0 equals a Strong Buy and 5.0 is a Strong Sell. Scores between 3.5 and 2.5 translate into a Hold recommendation. Any score higher than 3.5 is a Sell rating, and a score equal to or below 2.5 means that analysts, on average, rate the stock as being Buy-worthy. The closer a score gets to 1.0, the stronger the Buy recommendation.
Read on as we show you how Wall Street's analysts rate all 30 Dow stocks and what they have to say about their prospects.
Stock prices, analysts' recommendations and other data as of Sept. 20, courtesy of S&P Global Market Intelligence. Stocks are listed by analysts' consensus recommendation, from lowest to highest.
- Market value: $104.5 billion
- Dividend yield: 3.3%
- Analysts' consensus recommendation: 3.05 (Hold)
3M (MMM, $180.53), which makes everything from adhesives to electronic touch displays, earns the dubious distinction of being analysts' least favorite Dow stock.
Years of sluggish revenue growth and stagnant operating margins contribute to the Street's lack of enthusiasm for shares. MMM also faces ongoing litigation risks over the use of environmentally unfriendly PFAS chemicals and the manufacture of allegedly unsafe ear plugs used by the military.
True, easy year-over-year comparisons helped MMM blow past the Street's second-quarter estimates, but even there analysts question whether the company can keep up with the sudden resurgence in demand.
"3M right now is similar to an expert downhill skier that has decades of experience, but when suddenly forced to cut deep tracks in the figure 8 championships, it still has to work the kinks out of its global ability to dynamically change on the fly to rapidly evolving business conditions," writes William Blair analyst Nicholas Heymann, who rates shares at Market Perform (the equivalent of Hold).
The analyst adds that 3M faces "increasingly challenging global business conditions due to supply chain disruptions, sharply rising input cost inflation and challenging price implementation conditions."
Much of the Street agrees with that assessment. Of the 19 analysts issuing opinions on MMM tracked by S&P Global Market Intelligence, two rate it at Strong Buy, one calls it a Buy, 12 have it at Hold, two say Sell and two say Strong Sell.
Long-term investors can at least take heart in 3M's almost unrivaled record of dividend growth. The conglomerate is a member of the S&P 500 Dividend Aristocrats, a list of companies that have increased their payouts annually for at least 25 consecutive years.
#29: Walgreens Boots Alliance
- Market value: $41.9 billion
- Dividend yield: 3.9%
- Analysts' consensus recommendation: 2.95 (Hold)
The Street hasn't budged from its consensus Hold recommendation on Walgreens Boots Alliance (WBA, $48.40) for at least a year-and-a-half, and only a single analyst is actually bullish on the stock.
Baird Equity Research's Eric Coldwell rates WBA at Strong Buy, and freely admits he is "betting against the herd."
No kidding. Excluding Coldwell, 19 analysts rate WBA at Hold and one says Sell.
"Sell-side analysts really don't like WBA," Coldwell writes. "This fact alone leaves us optimistic that we shouldn't be that wrong, even if we are misguided in our more positive stance."
The analyst cites a "valuation that does not demand perfection" from the company's operating results, solid cash flow and WBA's healthy balance sheet as reasons for being constructive on shares.
WBA boosted its balance sheet in June by selling the majority of its Alliance Healthcare business to AmerisourceBergen (ABC) for $6.3 billion in cash.
And then, of course, there's the dividend, Coldwell says. WBA, a member of the S&P 500 Dividend Aristocrats, has hiked its payout for 46 consecutive years. The most recent increase was announced in July – a 2.1% bump in the quarterly distribution to 47.75 cents per share.
Most analysts, however, remain cautious on the name. We'll use Jefferies analyst John Ransom as a sort of spokesperson for the Hold camp:
"While WBA's fiscal third quarter was optically good, we remain on the sidelines given the uncertainty around vaccination rates going forward, sustainability of pharmacy margins, timing of recovery in the U.K. business and an increasing cost burden from investments," writes Ransom, who rates WBA at Market Perform (Hold).
- Market value: $214.9 billion
- Dividend yield: 2.6%
- Analysts' consensus recommendation: 2.70 (Hold)
Intel (INTC, $52.98) has been one of the most troubled Dow Jones stocks in recent years, falling far behind its competition on any number of fronts. Indeed, this iconic tech stock has been a disappointing long-term performer. While the broader market has more than doubled over the past five years, INTC is up just 42.5%.
Analysts' consensus recommendation stands at Hold, but with a bearish tilt. Sell ratings are rare on the Street, so it's noteworthy that among the 43 analysts issuing opinions on INTC, seven call it a Sell and three have it at Strong Sell. The remaining recommendations break down to 10 Strong Buys, six Buys and 17 Holds.
CFRA Research analyst Angelo Zino cites both short-term and strategic issues in taking a cautious stance on the name.
"We see heightened competitive threats from Advanced Micro Devices (AMD) and uncertainty about the PC space as near-term concerns," writes Zino (Hold). "Should the new management team improve manufacturing execution and capture significant new business within its foundry business, we could become more constructive over time."
Intel earlier this year announced the creation of Intel Foundry Services, which includes a $20 billion investment to build two factories in Arizona.
On the bullish side of the trade, long-suffering shareholders should be relieved to know that INTC remains one of hedge funds' top blue-chip stocks. Indeed, some big-time investors are giving the troubled chipmaker a huge vote of confidence.
That certainly appears to be the case with Voloridge Investment Management. Led by renowned data scientist David Vogel, this hedge fund with $20.4 billion in assets under management initiated a position in INTC worth $38.8 million in the second quarter.
- Market value: $38.1 billion
- Dividend yield: 2.3%
- Analysts' consensus recommendation: 2.68 (Hold)
Travelers (TRV, $152.66) is another Dow stock that seems perennially stuck at Hold. Indeed, analysts have been collectively neutral on shares in the property and casualty insurer for more than two years and counting.
Travelers easily topped Wall Street's second-quarter estimates in July, helped by strong growth in investment income and a drop in catastrophe losses. But low interest rates, which hurt the returns insurers earn on their fixed-income holdings, and Travelers' high exposure to deteriorating conditions in the workers' compensation industry, make it tough for most analysts to recommend the name.
"We believe TRV could experience deteriorating results stemming from headwinds in the workers' compensation industry," writes Raymond James analyst C. Gregory Peters, who rates shares at Underperform (the equivalent of Sell).
The analyst notes that Travelers is the largest writer of workers' comp insurance in the U.S., giving it high exposure to industry woes that include lower pricing, high unemployment, increasing loss ratios and the spread of the COVID-19 Delta variant.
More bullishly, Argus Research analysts Kevin Heal and Caleigh McGough (Buy) expect TRV's "margins to increase as the company raises prices on auto insurance and expands its data analytics and digital initiatives," among other catalysts.
"We believe that Travelers can generate a higher return on capital, and note that it recently raised its quarterly dividend by 4% to 88 cents per share," the analysts add.
The pros forecast Travelers to generate average annual earnings per share (EPS) growth of 7.4% over the next three to five years. However, with an average target price of $163.80, the Street gives TRV stock implied upside of less than 5% over the next 12 months or so.
- Market value: $224.6 billion
- Dividend yield: 4.7%
- Analysts' consensus recommendation: 2.67 (Hold)
Verizon (VZ, $54.26), the Dow's only telecommunications stock, is off more than 7% in 2021, trailing the broader market by more than 25 percentage points.
And while the Street isn't as down on VZ as the market is, analysts aren't particularly enthusiastic about its prospects, either. Of the 27 analysts issuing recommendations that are tracked by S&P Global Market Intelligence, four rate VZ at Strong Buy, three say Buy, 19 have it at Hold and one calls it a Strong Sell.
Verizon is the largest wireless carrier in the U.S. by subscriber count, and also boasts the highest margins, notes Oppenheimer analyst Timothy Horan, who rates shares at Perform (the equivalent of Hold).
The downside? Persistent and growing worries about the threat posed by T-Mobile (TMUS) following its 2020 merger with Sprint.
"VZ trades at a relatively attractive valuation," Horan writes. "Balancing this undemanding valuation is investor concern about potential future competition."
William Blair Equity Research analyst Jim Breen (Market Perform) shares a number of the same concerns.
"Although Verizon remains focused on the wireless business and continues to achieve modest growth, elevated competition in a mature industry will cap Verizon's ability to attract new customers and accelerate growth over the long term," writes Breen in a note to clients.
Breen does, however, recommend VZ as an "attractive defensive stock for investors seeking income and capital preservation." And, indeed, the company's historic commitment to dividend growth speaks for itself. This blue-chip telco has increased its payout annually for 15 consecutive years.
Those dividends really do add up. VZ stock is essentially flat over the past three years. Add in the dividend, however, and VZ's total return comes to more than 15%.
#25: International Business Machines
- Market value: $120.4 billion
- Dividend yield: 4.9%
- Analysts' consensus recommendation: 2.63 (Hold)
International Business Machines (IBM, $134.31) gets a high proportion of lukewarm reviews from analysts, which seems fair enough. After all, they've watched Big Blue's top line shrink relentlessly for 10 years and counting.
The company does have its fans, however. Argus Research calls IBM a Buy, based partly on valuation.
"The current discount in IBM shares represents opportunity," writes analyst Jim Kelleher. "Skepticism toward IBM runs deep after a decade of declining revenue. IBM, however, appears to be getting closer to returning to sustainable (as opposed to one-off) growth."
Kelleher acknowledges that the surprise July resignation of IBM President Jim Whitehurst certainly didn't comfort skeptics. Whitehurst came to the company as the CEO of Red Hat, which IBM acquired three years ago for $34 billion. The addition of Red Hat is intended to help IBM compete with Microsoft (MSFT) and Amazon.com (AMZN) in cloud-based services.
IBM's other big strategic gambit is the planned spinoff of its managed infrastructure services unit into a separate publicly traded company – to be called Kyndryl – later this year. The move is aimed at creating a growthier, more profitable IBM.
Analysts such as Argus' Kelleher expect the twin moves to shake IBM out of its historic funk. Others are not so sure.
"IBM has made much-needed progress in the first half of 2021, which we do not discount, but a progressive recovery across multiple areas will be needed to convince investors that mid-single revenue growth is attainable longer term," writes CFRA Research analyst David Holt (Hold).
Although three analysts rate IBM at Strong Buy and one says Buy, 11 call it a Hold and one says Sell.
In brighter news: IBM was added to the S&P 500 Dividend Aristocrats in January 2021. In April, Big Blue raised its payout again to mark 26 straight years of dividend growth.
- Market value: $41.9 billion
- Dividend yield: 4.9%
- Analysts' consensus recommendation: 2.57 (Hold)
Analysts and investors alike lost some of their appetite for Dow (DOW, $56.18) over the summer.
Resurgent global demand for Dow's specialty chemicals and materials helped shares clobber the broader market and blue-chip average over the first half of 2021. Analysts, as a group, had a consensus Buy recommendation on the name as recently as two months ago, citing strong pricing and demand trends.
But rising energy prices and mounting anxiety over a global economic slowdown sparked by the spread of COVID-19's Delta variant has put a damper on DOW stock – and at least some analysts' outlooks.
A second-half swoon now has DOW stock lagging both the S&P 500 and blue-chip barometer for the year-to-date. At the same time, the Street's consensus recommendation has slipped to Hold.
Not that the bull case has completely collapsed. Of the 21 analysts issuing opinions on DOW, five rate it at Strong Buy, two say Buy, 12 have it at Hold, one says Sell and one rates it at Strong Sell.
UBS Global Research rates DOW at Neutral (the equivalent of Hold), citing macroeconomic risks, among other factors.
"Escalating oil and natural gas costs could hurt consumer spending and, hence, demand for Dow's products," Roberts writes. "Earnings for commodity chemical companies are sensitive to swings in energy costs, especially oil and natural gas."
Over at Deutsche Bank, analyst David Begleiter chimes in with a Hold of his own, saying that the company's strong second-quarter earnings were "as good as it gets for Dow."
As for the bullish side of the trade, CFRA Research's Richard Wolfe says Dow's "diverse portfolio and end-market exposure amid economic recovery, continued debt reduction and 4.9% dividend yield keeps us at Buy."
- Market value: $104.5 billion
- Dividend yield: 2.2%
- Analysts' consensus recommendation: 2.56 (Hold)
Shares in Caterpillar (CAT, $190.82) have described a similar trajectory to those of Dow: strong first-half outperformance eventually undone by renewed fears about Delta's impact on the global economic outlook.
At their spring peak, shares in the world's largest manufacturer of heavy construction and mining equipment were up more than 34% for the year-to-date. Today, CAT is down 22% from that peak to trail the broader market by about 11 percentage points.
Analysts' consensus recommendation remained at Hold the entire time, but concerns about a stretched valuation have since taken a backseat to more fundamental concerns.
True, being in the early stages of economic recovery and the promise of federal infrastructure spending benefits cyclical companies like CAT, but the related rise in costs remains a headwind for shares, notes UBS Global Research analyst Steven Fisher (Hold).
"We think supply chain and inflation pressures need to become more manageable, and this could take a couple of quarters," Fisher writes.
Baird analyst Mircea Dobre rates CAT at Outperform, but says Chinese commodity demand, rising oil and gas prices, and a slowdown in non-residential construction spending remain risks.
Even more optimistic is CFRA Research, which is solidly bullish even as short-term pressures build.
"Despite our negative outlook on operating margin, we have a Buy on CAT, supported by immense positive catalysts from the U.S. federal infrastructure spending bill," writes CFRA Research's Elizabeth Vermillion.
The bottom line is that seven analysts rate CAT at Strong Buy, three say Buy, 14 call it a Hold, one says Sell and two say Strong Sell. That works out to a consensus rating of Hold, with a slightly bullish tilt.
- Market value: $122.2 billion
- Dividend yield: 3.2%
- Analysts' consensus recommendation: 2.54 (Hold)
Analysts have become incrementally more cautious on Amgen (AMGN, $215.11) over the past few months, citing increased pricing pressure on several key drugs as a central area of concern.
The pharmaceutical giant topped Street estimates in the second quarter, but a failure to raise earnings guidance raised at least a few analysts' eyebrows.
UBS Global Research's Colin Bristow notes that although AMGN's total product sales growth signalled recovery from COVID-19, "core assets such as Aimovig, Repatha and Otezla (with continued COVID impact) underwhelmed."
Although early launch metrics for new cancer drug Lumakras were encouraging, "we struggle to see any near to midterm drivers of significant upside for AMGN and so remain Neutral rated," Bristow writes.
William Blair Equity Research analyst Matt Phipps is likewise worried about how the most recent quarter unfolded.
"Pricing pressure offset patient growth for several key products, including Aimovig, Repatha and Otezla," writes Phipps (Market Perform). "This will obviously impact the overall growth of the company on top of the continued erosion of legacy products and stagnation of the biosimilars business."
Although shares of the healthcare stock have stumbled in 2021 – AMGN is off more than 6% for the year-to-date – Oppenheimer analyst Jay Olson says they're a good fit for patient investors.
"We forecast Amgen revenue growth over the next 10 years leveraged by margin expansion, as management has a track record of financial discipline," says Olson, who rates shares at Outperform (the equivalent of Buy).
Of the 26 analysts issuing opinions on AMGN that are being tracked by S&P Global Market Intelligence, seven rate it at Strong Buy, two say Buy, 15 call it a Hold and two believe it's a Strong Sell. They expect the company to generate average annual EPS growth of 7.1% over the next three to five years.
#21: American Express
- Market value: $127.6 billion
- Dividend yield: 1.1%
- Analysts' consensus recommendation: 2.44 (Buy)
American Express (AXP, $160.57) is the first of our Dow Jones stocks to receive a consensus recommendation of Buy. The Street's collective wisdom pulls AXP just over the edge from Hold, with six Strong Buy calls, five Buys, 14 Holds and two Sells.
Shares are up by almost 33% for the year-to-date, trailing only Goldman Sachs (GS) as this year's top-performing Dow stock. And while some on the Street remain upbeat on the name, others can't shake concerns about COVID and what it could do to AXP's billings and credit quality.
After weighing the evidence, Piper Sandler analyst Christopher Donat, for one, sides with the bulls.
"Credit quality remains excellent," writes Donat, who rates AXP at Overweight (Buy). "While we are tempted to raise third-quarter EPS estimates as net write-offs and delinquency rates were below our expectations, we are concerned that the spread of the Delta variant and its related impact on consumer activity and credit quality might be negative."
On the other side of the trade, Credit Suisse, which rates shares at Underperform, recently added AXP to its list of highest-conviction sell calls.
Splitting the difference with a Neutral rating, Susquehanna Financial Group analyst James Friedman acknowledges rising Delta risks. However, he also believes AXP remains on track for solid growth this year and beyond.
"AXP posted robust results, the outperformance of which suggests they are likely taking market share as a result of their aggressive marketing and related strategies," Friedman writes.
As borderline as the Street's Buy call may be, let's not forget that AmEx is one of Warren Buffett's all-time favorite stocks. The CEO of Berkshire Hathaway first bought shares in the firm in 1963 and remains its largest shareholder by far today.
- Market value: $122.8 billion
- Dividend yield: N/A*
- Analysts' consensus recommendation: 2.36 (Buy)
Shares in Boeing (BA, $209.50) are essentially flat for the year-to-date, but bullish analysts say the stock is set for liftoff once the aerospace and defense behemoth gets through a current bout of turbulence.
Analysts say there are two major developments that should get shares flying in the shorter term: China allowing the 737 MAX back in the air; and the resumption of deliveries of the 787 Dreamliner, which have been suspended over manufacturing flaws.
"While Boeing continues to have some unanswered questions related to the ungrounding of the 737 MAX in China (still expected for Q4 '21), the timing of the 787 fix, restarting deliveries, and the subsequent production reacceleration, we believe answers to these questions will serve as potential catalysts for the stock," writes Susquehanna Financial Group analyst Charles Minervino, who rates BA at Positive (the equivalent of Buy).
CFRA Research's Colin Scarola (Buy) agrees, noting that BA's latest quarterly results suggest the company is ready to rebound in a big way.
"BA's strong sequential growth came despite major – but temporary setbacks – including a roughly two-month MAX delivery pause and an ongoing 787 pause," Scarola says. "The MAX issue has since been corrected, and we see 787s resuming deliveries in Q4."
True, BA has its doubters on the Street, but bullish ratings still outweigh the bearish ones. Of the 22 analysts issuing opinions on the stock tracked by S&P Global Market Intelligence, eight rate it at Strong Buy, two say Buy, 10 say Hold and two call it Strong Sell.
*Boeing suspended its dividend in March 2020 in response to the COVID-19 crisis.
#19: Procter & Gamble
- Market value: $347.0 billion
- Dividend yield: 2.4%
- Analysts' consensus recommendation: 2.29 (Buy)
Consumer staples stocks such as mega-cap Procter & Gamble (PG, $142.89) were early winners from the pandemic and rolling lockdowns. People will always need products such as P&G's Charmin toilet paper, Head & Shoulders shampoo and Crest toothpaste.
But now some analysts worry about increasingly difficult year-over-year comparisons – not to mention higher costs for raw materials and other expense pressures.
The market is even more concerned than the Street. Shares in P&G are up less than 3% for the year-to-date. The S&P 500, meanwhile, has gained 16% so far this year.
Procter & Gamble has announced price increases to offset higher costs, notes UBS Global Research. But analyst Peter Grom maintains a Neutral (Hold) recommendation on shares, partly due to increased commodity and freight costs, as well as foreign exchange headwinds.
"Given volatility around year-over-year comparisons and inflation, at these PG share-price levels, we would look for a more attractive entry point or wait until we have more visibility into a scenario where PG can deliver above the high-end of its guidance range before becoming more constructive on shares," Grom writes.
The Street's consensus recommendation, however, still works out to Buy. Six analysts have PG at Strong Buy, four say Buy, 10 call it a Hold and one says Sell.
Income investors should be aware that P&G is a dividend-growth machine. Indeed, it's a member of the S&P 500 Dividend Aristocrats, having raised its payout annually for 65 years. The last hike came in April 2021, with a 10% increase in the quarterly dividend to 86.98 cents per share.
#18: JPMorgan Chase
- Market value: $457.1 billion
- Dividend yield: 2.3%
- Analysts' consensus recommendation: 2.15 (Buy)
Analysts as a group have remained steadily bullish on JPMorgan Chase (JPM, $152.96) over the course of 2021, and their clients have been resoundingly rewarded as a result.
Shares in the nation's largest bank by assets are outperforming the S&P 500 by 4 percentage points for the year-to-date – and beating the Dow by an even wider margin.
JPM's strength across multiple business lines and an improving economic backdrop make it a standout, analysts say. It also helps that interest rates appear to be headed directionally higher.
"We think JPM is well positioned for increased loan activity from the consumer and small business that, combined with investment banking, is 83% of total revenue," writes CFRA Research analyst Kenneth Leon (Buy). "We think JPM is gaining wallet share in investment banking as a top-three firm."
Over at Jefferies Equity Research, analyst Ken Usdin (Buy) "expects JPM's diversified business model to continue to outperform peers in each of its segments." JPM's fee and loan growth should also outpace peers, he says.
Argus Research analyst Stephen Biggar (Buy) notes that the bank's most recent quarterly results "further demonstrated the benefits of JPM's vast revenue diversification." He points to expectations for continued improvement in loan growth, favorable credit quality and a cheap valuation as reasons to buy the stock.
Bullishness like Biggar's is predominant on the Street. Of the 26 analysts issuing opinions on the Dow stock tracked by S&P Global Market Intelligence, 10 rate it at Strong Buy, six say Buy and eight have it at Hold. Two call JPM a Strong Sell.
- Market value: $148.9 billion
- Dividend yield: 1.7%
- Analysts' consensus recommendation: 2.16 (Buy)
Analysts as a group skew bullish on Honeywell (HON, $215.73), saying it's only a matter of time before the market appreciates its long-term growth potential on the other side of the pandemic.
Bears, however, see a stock that remains overpriced even as it lags the broader market by a wide margin this year.
"HON's sales and earnings remain materially below 2019 level with material long-term risks to key markets, but its stock price is up 30% since 2019," writes CFRA Research analyst Colin Scarola. "This incongruence drives our Strong Sell rating."
More bullishly, Credit Suisse analyst John Walsh acknowledges that HON's valuation might appear a bit stretched. But given the company's track record, investors should "appreciate HON's sales growth and margin expansion opportunities, especially at this point in the economic cycle, as well as significant balance sheet capacity that can accelerate the transition to a Software Industrial," writes Walsh, who rates HON at Outperform (Buy).
Meanwhile, William Blair analyst Nicholas Heymann (Market Perform) makes a Hold case for the stock.
"Very simply, at current valuations, the market is not focused on the magnitude or pace of recovery coming out of the pandemic, but on what a company's long-term growth rate is likely to be after (not emerging from) the pandemic and how this may have secularly improved due to the pandemic," Heymann writes.
Of the 25 analysts issuing opinions on the Dow stock tracked by S&P Global Market Intelligence, nine rate it at Strong Buy, five say Buy, 10 call it a Hold and one says Strong Sell.
#16: Cisco Systems
- Market value: $235.7 billion
- Dividend yield: 2.6%
- Analysts' consensus recommendation: 2.10 (Buy)
Cisco Systems (CSCO, $55.89) has put in a fine performance relative to its fellow Dow Jones stocks so far in 2021 – up by 25% – and the Street thinks shares have more room to run.
Of the 29 analysts covering CSCO tracked by S&P Global Market Intelligence, 10 rate it at Strong Buy, six say Buy and 13 have it at Hold. That said, this is hardly a growth stock. The Street forecasts EPS to increase at an average annual rate of just 3.6% over the next three to five years.
CSCO is transitioning from being heavily dependent on hardware such as internet routers and switches to higher-growth software and cloud services.
It has been a challenge, to say the least.
"Against very easy year-over-year comparisons, Cisco is seeing orders rebound as most companies, large and small, rebound IT spending," writes Needham analyst Alex Henderson (Hold). "Offsetting these stronger orders, supply constraints are holding growth back, but providing visibility further out than normal. We note Cisco has easy comps for the next two quarters before they normalize."
Henderson adds that although CSCO stock "could get a lift as it produces improved revenue over the year-ago declines in the comparisons, we hesitate to call this growth."
At Jefferies, analyst George Notter (Buy) says the global chip shortage is very much a current challenge, but focusing on that headwind misses the forest for the trees.
The "bigger picture" with CSCO, Notter argues, is "the business transformation/digitization trends that have been driving CSCO's business aren't going away."
The analyst further contends that there's "quite a bit of EPS power that Cisco could unlock once the supply chain issues eventually moderate. A below-market valuation and the dividend yield should help keep a floor on the stock price."
#15: Goldman Sachs
- Market value: $127.5 billion
- Dividend yield: 2.0%
- Analysts' consensus recommendation: 2.07 (Buy)
Goldman Sachs (GS, $378.13) is the top-performing Dow Jones stock so far this year, up more than 43% through Sept. 20. And analysts remain bullish on the investment bank's stock, regardless of those outsized gains.
"We believe capital markets will remain very active in a low rate, risk-on environment from corporate issuers, M&A and investors," writes CFRA Research analyst Kenneth Leon (Strong Buy). "We think GS can extend high growth in asset/wealth management and consumer banking, while investment banking benefits from record initial public offering and M&A pipeline."
And investment banking strength really plays to Goldman Sachs' hand, analysts note.
"The investment banking backlog increased to a new record level in Q2 '21 despite headwinds from strong transaction closings that drove investment banking revenue to its second highest quarter on record," writes Piper Sandler analyst Jeffery Harte (Overweight).
Over at Jefferies, analyst Daniel Fannon initiated coverage of GS at Buy in June, citing strength in investment banking and capital markets, among other positives expected to drive shares higher.
Interestingly, GS's supreme position in capital markets actually contributes to a Hold call from Argus Research.
"We believe a surge in equity issuance over the past few quarters will slow, while volatility will likely subside, and note consensus expectations for a considerable earnings decline in 2022," writes Argus Research's Stephen Biggar.
Overall, though, GS falls solidly in the range of a consensus Buy recommendation. Of the 27 analysts issuing opinions on the stock tracked by S&P Global Market Intelligence, 10 rate it at Strong Buy, seven say Buy, nine have it at Hold and one says Strong Sell.
- Market value: $183.3 billion
- Dividend yield: 5.5%
- Analysts' consensus recommendation: 2.04 (Buy)
Chevron (CVX, $94.78) is the lone energy-sector component among the 30 Dow Jones stocks, which is too bad for anyone indexing their investments to the blue-chip average. CVX is up 12.2% for the year-to-date, while rival Exxon Mobil (XOM), which was jettisoned from the Dow in 2020, is sitting on a year-to-date gain of more than 30%.
Wall Street has remained steadfast in its bullish view of CVX for more than 18 months – a period in which it never budged from its Hold call on XOM either.
So it goes. But there is indeed a compelling Buy case to be made for the second-largest integrated oil major, and plenty of analysts contend investors will be rewarded for their patience.
"In the current volatile energy environment, a company's balance sheet strength and place on the cost curve are critical, and favor integrated oil companies that are well positioned to manage a potentially long period of volatile oil prices," writes Argus Research analyst Bill Selesky (Buy). "CVX is one of these companies as it benefits from best-in-class production growth, industry-low operating costs and a strong balance sheet."
The analyst further notes that Chevron plans to resume stock buybacks in the third quarter at a rate of $2 billion to $3 billion annually, calling it a "solid starting point" that could eventually return buybacks to their pre-pandemic level of $5 billion per year.
Raymond James analyst Justin Jenkins (Outperform) makes a similar case.
"With the strongest financial base of the majors, coupled with an attractive relative asset portfolio, Chevron offers the most straightforwardly positive risk/reward," Jenkins writes.
Ten analysts rate the energy stock at Strong Buy, seven say Buy and 11 rate it at Hold, per S&P Global Market Intelligence.
#13: Johnson & Johnson
- Market value: $431.2 billion
- Dividend yield: 2.6%
- Analysts' consensus recommendation: 2.0 (Buy)
Analysts have a consensus recommendation of Buy on Johnson & Johnson (JNJ, $163.81). Among the arguments in favor of the Dow stock, bulls point to its strong pharmaceutical pipeline, a rebound in demand for medical devices and recent acquisitions.
"The company's current growth opportunities, pharmaceutical pipeline strength, and success in integrating acquisitions support our $200 target," writes Argus Research analyst David Toung (Buy). "J&J is also benefiting from a growing consumer business, boosted by newly acquired brands."
Toung's 12-month target price gives JNJ implied upside of more than 20%. The Street's average target of $185.83 is less optimistic, giving shares implied upside of about 13% over the next year or so.
Whether Toung's target price is achievable depends in part on JNJ's success in integrating Momenta Pharmaceuticals, which it acquired in 2020 in a $6.5 billion deal.
At Stifel, analyst Rick Wise agrees that JNJ has multiple growth drivers and is a classic buy-and-hold name. He simply doesn't like the stock at current levels.
"We view Johnson & Johnson as a core healthcare holding and total-return vehicle in any market environment for investors looking for relative safety and stability," writes Wise. "Still, we rate JNJ shares at Hold as we believe there could be more opportune entry points from both a timing and valuation standpoint."
As for being a total-return vehicle, few companies have shown a greater commitment to dividend growth. This Dividend Aristocrat has raised its payout annually for 59 consecutive years, most recently in April with a 5% increase in the quarterly distribution to $1.06 per share.
Again, dividends really do add up. Over the past five years, JNJ gained 39% on a price basis. Including dividends, however, its total return comes to 59%.
Of the 18 analysts issuing opinions on JNJ, eight rate it at Strong Buy, two say Buy and eight have it at Hold.
- Market value: $233.4 billion
- Dividend yield: 3.1%
- Analysts' consensus recommendation: 1.96 (Buy)
The pandemic put a crimp on sales at restaurants, bars, cinemas, live sports and other events, all of which took a toll on Coca-Cola (KO, $54.06). But now that the global economy is back on the move, analysts increasingly like KO as a recovery play.
For one thing, KO is benefitting from easy year-over-year comparison, essentially setting it up for spring-loaded sales growth.
Although some analysts caution that the overhang of ongoing tax litigation could weigh on investor sentiment regarding KO shares, certain macroeconomic and fundamental factors point to it as one of the better recovery names – particularly among Dow Jones stocks – for investors who love big, sturdy blue chips.
"We expect increased consumer mobility, market-share gains and a focus on innovations (Coke Zero reformulation, Topo Chico, Costa) to continue to drive top-line growth," writes UBS Global Research analyst Sean King (Buy). "Net, we remain confident in KO's sequential improvement story and believe it will deliver double-digit percent EPS growth over the next two years."
Credit Suisse analyst Kaumil Gajrawala (Outperform) takes a similar view of the beverage giant's prospects.
"Fundamentals were solid pre-pandemic and Coke is set to emerge stronger from the COVID crisis given strategic initiatives and organizational changes," Gajrawala says. "We believe this sets Coke up for a period of high-single to low double-digit earnings growth."
Of the 26 analysts covering Coca-Cola tracked by S&P Global Market Intelligence, 11 rate it at Strong Buy, five say Buy and 10 call it a Hold.
#11: Home Depot
- Market value: $349.5 billion
- Dividend yield: 2.0%
- Analysts' consensus recommendation: 1.88 (Buy)
Home Depot (HD, $331.21) has long been one of the Street's favorite ways to play the housing market. Turns out, HD also was a profitable way to play COVID-19. A country basically cooped up at home was great for business at the nation's largest home improvement chain.
Analysts expect the good times to keep rolling, but the end of the pandemic era does add a layer of uncertainty.
"HD has likely generated strong third-quarter sales trends in its Pro segment even as Do-It-Yourself trends have likely slowed," writes UBS Global Research strategist Ajit Agrawal (Buy). "This trend is likely to continue over the rest of fiscal 2021. Plus, a decline in COVID costs should drive nicely positive EPS growth for HD, despite tough year-over-year comparisons."
Although shares in HD are beating the broader market by a wide margin for the year-to-date, they remain slightly below their 52-week high notched in May. Overly high expectations may be partly to blame, says Raymond James analyst Bobby Griffin, who advises investors to focus on the big picture and maintain long horizons.
"While the prior comparisons are tough, the industry backdrop for Home Depot remains favorable, driven by the consumer gaining confidence to take on more complex projects, low interest rates and higher equity values in homes," writes Griffin (Outperform). "We advise long-term focused investors to buy the dip given the solid industry fundamentals, strong execution and favorable long-term growth outlook."
Regarding that long-term outlook, the Street expects HD to generate average annual EPS growth of 10.1% over the next three to five years, per S&P Global Market Intelligence. Sixteen analysts rate the Dow stock at Strong Buy, seven say Buy, nine call it a Hold and one says Strong Sell.
- Market value: $178.6 billion
- Dividend yield: 2.1%
- Analysts' consensus recommendation: 1.78 (Buy)
McDonald's (MCD, $239.09) is bouncing back from the pandemic, which caused a steep drop in in-store traffic. Naturally, analysts see it as a golden way to bet on the post-COVID-19 recovery.
Although shares have only matched the performance of the blue-chip barometer for the year-to-date, the Street expects MCD to deliver market-beating returns once its international segment catches up to a rebounding U.S.
"We continue to identify drivers for upside," writes Oppenheimer analyst Brian Bittner (Outperform). "The reliable and dominant U.S. business is armed with upgraded sales strategies to drive outperformance, while there is an under-appreciation for an offensive recovery in the hard-hit international business (60% of profits pre-COVID-19)."
Indeed, an accelerating recovery both at home and especially abroad remains a powerful catalyst for the fast-food giant heading into next year, the pros say.
"With durable sales momentum, opportunities to gain share in international markets, and margin progress, we continue to see upside to MCD shares," writes BMO Capital Markets analyst Andrew Strelzik (Outperform).
True, not every analyst is bullish on the stock. Raymond James analyst Brian Vaccaro (Market Perform), for one, takes issue with MCD's valuation.
"We believe the stock is fairly valued at current levels and would be patient for a better entry point to materialize," he says.
The bottom line? Nineteen analysts rate MCD at Strong Buy, seven say Buy and 11 call it a Hold, per S&P Global Market Intelligence. That works out to a consensus recommendation of Buy, and with fairly high conviction.
As for the Street's long-term earnings forecast: Analysts expect MCD to deliver average annual EPS growth of more than 14% over the next three to five years.
- Market value: $182.1 billion
- Dividend yield: 3.6%
- Analysts' consensus recommendation: 1.77 (Buy)
Merck (MRK, $71.93) has been underperforming the market by so much for so long that it's simply too cheap to ignore, the pros say.
The pharmaceutical giant's shares are off more than 12% for the year-to-date. That lags the S&P 500 by more than 28 percentage points. The situation is even worse over the past 52 weeks, where MRK trails the broader market by a whopping 47 percentage points.
The sliding share price has left MRK trading at just 11.1 times analysts' 2022 EPS estimate. That's well below its own five-year average of 15.1 times forward earnings, per Refinitiv Stock Reports Plus. Additionally, MRK trades at a 27% discount to the S&P 500, which goes for not quite 21 times expected earnings, per Yardeni Research.
The depressed valuation is partially attributable to concerns about growth following Merck’s June spinoff of its women's health business to shareholders.
"We are maintaining our Hold rating on Merck, reflecting the company's uncertain growth and margin profile after the Organon (OGN) spinoff," write Argus Research analysts David Toung and Caleigh McGough. "The spinoff should help Merck to achieve higher revenue and EPS growth over time; however, the company has also lost a range of mature, higher-margin products."
The Organon spinoff also makes the company more dependent on its blockbuster cancer drug Keytruda at a time when Merck is likely to see increased competition in that treatment area, the analysts add.
On balance, however, the Street is bullish on Merck, giving it a consensus recommendation of Buy, with fairly high conviction. Of the 22 analysts issuing opinions on the stock tracked by S&P Global Market Intelligence, 11 rate it at Strong Buy, five say Buy and six call it a Hold.
- Market value: $2.5 trillion
- Dividend yield: 0.6%
- Analysts' consensus recommendation: 1.73 (Buy)
Apple (AAPL, $142.94), the world's largest publicly traded, is beloved by analysts. But no less a luminary than Warren Buffett, chairman and CEO of Berkshire Hathaway (BRK.B), is truly head over heels for the stock.
"I don't think of Apple as a stock," Buffett has said about Apple. "I think of it as our third business."
Apple is Berkshire Hathaway's top stock holding, accounting for more than 41% of its total portfolio value. The Street isn't as overwhelmingly bullish as Buffett, but it's fair to say analysts as a group are keen on the name too. Twenty-six pros rate AAPL at Strong Buy, and another seven say Buy. Meanwhile, nine call it a Hold, one says Sell and one has it at Strong Sell.
AAPL is actually lagging the broader market for the year-to-date, up just 7.6% to the S&P 500's 16%. Concerns about how the global chip shortage could impact Apple in meeting demand for its gadgets – notably the new iPhone 13 – have weighed on sentiment, analysts say, but are likely overblown.
Indeed, it's possible the chip shortage could actually help Apple at the expense of competitors.
"We believe, given strong inflationary pressure on smartphone supply chain this year, that iPhone 13 will offer better relative value over Android flagships, sustaining its appeal for switchers," says Oppenheimer analyst Martin Yang (Outperform).
Bullish analysts also point to Apple's incomparable cash-flow generation, which allows it to return substantial sums of capital to shareholders through dividends and buybacks. If nothing else, that should "provide downside protection," Yang says.
Let's not forget: Apple hiked its dividend by 7% earlier this year and announced a new $90 billion share repurchase program.
- Market value: $398.0 billion
- Dividend yield: 1.5%
- Analysts' consensus recommendation: 1.70 (Buy)
Walmart (WMT, $142.74) is another one of the Dow stocks that's having a post-pandemic hangover so far in 2021. Shares are essentially flat for the year-to-date in a reverse of last year's COVID-19-fueled run.
As a one-stop shop for all manner of goods, and consumer staples in particular, Walmart, was poised to do well during the depths of the pandemic, but it really shined thanks to its huge e-commerce business.
Indeed, on a two-year stacked basis, U.S. e-commerce sales more than doubled in the company's fiscal second quarter ended July 31. Although WMT remains a distant second to Amazon.com, the fact remains that it is now the second-largest U.S. e-commerce retailer by market share.
Analysts say that's a pretty nifty feat for a company that was once derided as a brick-and-mortar dinosaur.
"WMT's early investments in tech/e-commerce and continued price investment have positioned it for future share gains," writes Jefferies analyst Stephanie Wissink (Buy). "We expect WMT to command an increasingly larger share of customer spend through bolstered omni-channel capabilities, partnerships and services."
Importantly, analysts say, Walmart pressed its advantage as the world's largest retailer even before the onset of COVID-19, setting itself up for outperformance long after the end of the pandemic era.
"Walmart's past investments helped it to win business and generate strong cash flow during the pandemic," writes Argus Research analyst Christopher Graja (Buy). "The company is taking advantage of its financial strength and ability to invest now to extend its advantage into the future."
Of the 37 analysts covering WMT tracked by S&P Global Market Intelligence, 21 analysts rate it at Strong Buy, 7 have it at Buy, eight call it a Hold and one says Sell.
- Market value: $244.2 billion
- Dividend yield: 0.7%
- Analysts' consensus recommendation: 1.62 (Buy)
In the race for price returns, Nike (NKE, $154.25) is one of the Dow Jones stocks that smoked the broader market in 2020. But it's having a harder time keeping up this year.
Shares in the athletic footwear and apparel maker beat the S&P 500 by more than 23 percentage points last year, but they're up just 9% in 2021. That trails the broad market benchmark by 7 percentage points for the year-to-date.
Analysts remain strongly bullish, however, viewing NKE's underperformance as a chance to go bargain shopping.
NKE benefited from the pandemic because consumers became more interested in staying healthy and dressing casually in the work-from-home environment. Bears emphasize that those days are coming to an end.
Global supply-chain headaches and an ongoing Chinese consumer backlash against Western brands are also scaring investors out of the stock, notes Stifel analyst Jim Duffy (Buy). Although such concerns are not trivial, the analyst expects them to be relatively short-lived.
"Ultimately, we view supply-oriented shocks to the business as one-time in nature and representing opportunity for positive reversal in future periods," Duffy says. "We view the recent pull-back in NKE shares as an opportunity, and would be buyers."
An 11% drop from their Aug. 5 peak has Nike’s shares trading at 36.6 times analysts' next-12-months EPS estimate. That's down from more than 45 times expected earnings in March. In other words, NKE stock isn’t exactly cheap, but it is almost 20% less expensive than it was just six months ago.
Meanwhile, analysts forecast Nike to generate average annual EPS growth of almost 18% over the next three to five years.
Nike is well-loved among the 29 analysts covering the stock, says S&P Global Market Intelligence. Specifically, 17 rate it at Strong Buy, 7 say Buy, four have it at Hold and one slaps a Sell call on the name.
#5: Walt Disney
- Market value: $324.6 billion
- Dividend yield: N/A*
- Analysts' consensus recommendation: 1.57 (Buy)
As a sprawling media and entertainment conglomerate, analysts see Walt Disney (DIS, $178.61) as an obvious way to play the post-COVID economy.
True, Disney stock is up less than 2% for the year-to-date, trailing the broader market by a wide margin. But analysts say it's only a matter of time before a sort of "recovery trade 2.0" reinflates DIS shares.
Indeed, they forecast the company to generate average annual EPS growth of nearly 30% over the next three to five years.
After all, the coronavirus took a huge bite out of some of the company's most important divisions: specifically, its theme parks and studios. But while attendance at amusement parks and cinemas remains below pre-pandemic levels, it does continue to track higher.
Although Disney "still faces risks from the pandemic, particularly from the spread of the Delta variant," notes Argus Research analyst Joseph Bonner (Buy), "strength in its television, theme parks and direct-to-consumer businesses should continue to gain momentum."
Bonner adds that the old saying that "luck favors the prepared" can be applied to Disney's November 2019 launch of the Disney+ video service. The streaming platform is a smashing success, having already amassed more than 100 million subscribers – a staggering rate of growth. Indeed, Disney+ quickly claimed about half as many subscribers as Netflix (NFLX), which had a roughly 12-year head start.
At CFRA Research, analyst Tuna Amobi (Buy) writes that Disney is showing "major strides" on the road to recovery.
"With further reopening of theme parks, theaters and live sports events amid the vaccine rollout, we see a silver lining on the gradual path to more normalized operations through the second half of the fiscal year, accelerating in fiscal 2022," the analyst adds.
Of the 29 analysts issuing opinions on DIS, 18 rate it at Strong Buy, six say Buy and five call it a Hold.
* Disney suspended its dividend in May 2020 in response to the COVID-19 crisis.
#4: UnitedHealth Group
- Market value: $389.1 billion
- Dividend yield: 1.4%
- Analysts' consensus recommendation: 1.54 (Buy)
With a market value of nearly $390 billion and a 2021 revenue estimate of $283.7 billion, UnitedHealth Group (UNH, $412.70) is the largest publicly traded health insurer by a wide margin.
Analysts praise the company on a number of fronts, and frequently single out contributions from Optum, its pharmacy benefits manager segment.
"We believe UNH is well positioned by virtue of its diversification, strong track record, elite management team and exposure to certain higher growth businesses," writes Oppenheimer analyst Michael Wiederhorn (Outperform).
The analyst adds that Optum is a "nice complement" to UnitedHealth’s core managed care operations and continues to account for a large share of earnings. Furthermore, UNH's vertical integration strategy "strengthens the company's competitive positioning across many areas of the healthcare landscape," Wiederhorn says.
BofA Global Research analyst Kevin Fischbeck (Buy) concurs with that assessment, saying UnitedHealth’s "scale and diversity should position it well, while the strong trajectory at Optum provides a unique growth opportunity." He adds that the company's earnings power "still seems underappreciated" by the market.
Oppenheimer and BofA have plenty of company on the Street. Of the 26 analysts issuing opinions on the stock tracked by S&P Global Market Intelligence, 17 rate it at Strong Buy and five say Buy, versus just three Holds and one Sell. That gives UNH a consensus recommendation sitting on the cusp of Strong Buy.
The Street projects UnitedHealth to deliver average annual EPS growth of 13.6% over the next three to five years, while shares change hands at 19.4 times 2022 EPS estimates. That makes for an attractive valuation in a seemingly pricey market, analysts say.
- Market value: $482.9 billion
- Dividend yield: 0.6%
- Analysts' consensus recommendation: 1.54 (Buy)
Few Dow stocks get higher marks from hedge funds, analysts, mutual funds and even Warren Buffett than Visa (V, $220.05).
As the world's largest payments network, Visa is especially well-positioned to benefit from the growth of cashless transactions and digital mobile payments, analysts say. That secular part of the bull case helps explain why Berkshire Hathaway owns nearly 10 million shares in Visa, or 0.6% of its outstanding stock.
In the shorter term, although the pandemic greatly curtailed spending in a number of the company's categories – most notably travel and entertainment – those headwinds are gradually dying down.
"Payment volume and processed transactions bottomed in April 2020 and have been improving consistently since then," say Argus Research analysts Stephen Biggar and Caleigh McGough (Buy). "We continue to expect secular growth in payment volumes and believe that solid cost controls and strong buyback activity will aid earnings."
True, the COVID-19 Delta variant disrupted what was looking like a clean and clear recovery story. CFRA Research concedes that the pandemic continues to hinder Visa's cross-border transaction volumes. But the broader recovery trend and secular bull case remain intact.
"Visa is seeing a continuing acceleration driven by the reopening, as well as the affluent customer beginning to spend more," writes CFRA's Chris Kuiper (Buy). "We continue to see investors underappreciating the long-term trend of cash displacement and Visa's other products and services, such as its continued investments in open banking."
The bottom line is that bullish analysts believe the more immediate COVID-19 headwinds are no match for Visa's long-term tailwinds. With EPS expected to grow at an average annual rate of more than 20% over the next three to five years, it should come as no surprise that the Street's consensus recommendation on V stock stands on the cusp of Strong Buy.
Of the 37 analysts issuing ratings on V, 22 say Strong Buy, 10 call it a Buy and 5 have it at Hold.
- Market value: $252.8 billion
- Dividend yield: N/A
- Analysts' consensus recommendation: 1.52 (Buy)
Software-as-a-service juggernaut Salesforce.com (CRM, $258.22) was added to the Dow last year, and analysts say that's good news for the blue-chip average's prospects.
CRM, which provides customer relationship management software to enterprise customers, was providing cloud-based services before they were cool. That early-mover advantage has helped the stock outperform the broader market on a trailing return basis for years.
True, shares have lagged the broader market for the year-to-date, hurt in part by sentiment over Salesforce's $27.7 billion acquisition of Slack, which was completed in July. The company also faces tough year-over-year comparisons caused by strong pandemic-fueled sales in 2020.
But bullish analysts contend that Salesforce's fundamentals remain robust, and it's only a matter of time before the Slack deal pays off.
"The pandemic is driving sustained long-term secular demand for digital transformation," writes Jefferies analyst Brent Thill, who rates shares at Buy. "Salesforce.com will unlock Slack's value over time just like it did with MuleSoft. We continue to believe the stock will recover over time given the strong fundamentals that power the story."
Salesforce acquired enterprise technology firm MuleSoft for $6.5 billion in 2018.
Thill is very much in the majority on the Street, where the consensus recommendation stands at Buy, with high conviction. Of the 48 analysts covering CRM tracked by S&P Global Market Intelligence, 30 rate it at Strong Buy, 11 say Buy and seven rate it at Hold.
- Market value: $2.21 trillion
- Dividend yield: 0.8%
- Analysts' consensus recommendation: 1.36 (Strong Buy)
Microsoft (MSFT, $294.30) might be second only to Apple when it comes to market value, but it beats the iPhone maker handily when it comes to the Street's ardor.
Indeed, MSFT is the only Dow stock to score a consensus recommendation of Strong Buy from Wall Street analysts.
What gives Microsoft the edge over Apple when it comes to analysts' favor is its overwhelming success in cloud services with products such as Azure and Office 365.
"Microsoft remains our favorite large cap-cloud play and we believe the stock will move higher into year-end as the Street further appreciates the cloud transformation story," says Wedbush analyst Daniel Ives (Outperform). "We believe Azure's cloud momentum is still in its early days of playing out within the company's massive installed base, and the Office 365 transition for both consumer/enterprise is providing growth tailwinds over the next few years."
Workforces are increasingly moving to a "heavy remote focus," says Ives – a "cloud shift" that is just beginning its next stage of global growth. Ultimately, this digital transformation represents a total addressable market worth $1 trillion, he estimates, with MSFT in position to take a disproportionate share.
Stifel analyst Brad Reback (Buy) likewise cites Azure and Office 365 as core to the stock's long-term fortunes. But MSFT has other things going for it beyond those "large, multi-year, secular-growth engines."
Although the analyst remains "cautious on the Windows franchise," other businesses are gaining scale, notably Bing search, Surface tablets and the Xbox gaming segment.
And let's not forget the blue-chip stock's suitability for income investors. This component of the Dow Jones Industrial Average offers a modest dividend yield of 0.8%, but it has been improving its payout at a robust clip of more than 9% compounded annually over the past five years.