1100 13th Street, NW, Suite 750Washington, DC 20005202.887.6400Customer Service: 800.544.0155
All Contents © 2019The Kiplinger Washington Editors
By Dan Burrows, Contributing Writer
| August 8, 2019
The Dow Jones Industrial Average – that elite group of 30 industry-leading dividend payers – is having a very good year. True, the blue-chip average has lost about 1,350 points since hitting an all-time closing high on July 15, but all told, the collection of Dow stocks still is up a healthy 12% for the year-to-date.
That’s just on a price basis alone. Factor in dividends (the industrial average yields a decent-though-not-spectacular 2.1%), and the Dow has delivered a total return of 13% so far this year.
But not all Dow stocks are created equal. Although all these names have solid pedigrees, their short-to-intermediate term prospects diverge widely – at least as far as Wall Street analysts are concerned.
For investors who want to pick and choose among the bluest of blue chips, we sorted the Dow 30 by analysts’ average recommendation. S&P Global Market Intelligence 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. Any score lower than 3.0 (Hold) means that analysts, on average, rate the stock as being buy-worthy. The closer a score gets to 1.0, the better.
Here’s a look at how analysts rate all 30 Dow stocks right now – and why.
Share prices, dividend yields, price targets, analysts’ ratings and other data are courtesy of S&P Global Market Intelligence as of Aug. 6, unless otherwise noted. Stocks are listed by analysts’ average recommendation, from lowest to highest.
Market value: $94.2 billion
Dividend yield: 3.5%
Analysts’ average recommendation: 3.0
Industrial conglomerate 3M (MMM, $163.71), which makes everything from adhesives to electric circuits, has been struggling on several fronts, including slower growth in China. Second-quarter results showed marked improvement after a disappointing first-quarter report clobbered the stock, but analysts remain cautious.
“While investors were clearly pleased that 3M is no longer perceived to be in fundamental free fall, we still expect it could take at least two quarters of successive material improvement in the company’s absolute fundamental performance for investors to begin to regain confidence with 3M’s operational execution and growth trajectory,” note analysts at William Blair, who rate shares at Market Perform (Hold).
3M also recently disclosed an investigation into whether certain “expenditures may have violated the U.S. Foreign Corrupt Practices Act or other potentially applicable anti-corruption laws” in a government filing.
Analysts’ average target price of $179.40 gives the Dow stock implied upside of 9.6% over the next 12 months or so, which explains the average recommendation of Hold.
If there’s one thing investors can count on, however, it’s 3M’s dividend. The company has hiked its payout annually since 1959.
Market value: $46.5 billion
Sluggish revenue and earnings growth have analysts sitting on the fence when it comes to Walgreens Boots Alliance (WBA, $51.45). The largest U.S. pharmacy chain is forecast to post sales growth of just 2.7% next year, according to data from Refinitiv. Analysts forecast earnings to rise at an average annual rate of 2.1% over the next five years.
Of the 23 analysts covering Walgreens’ stock tracked by S&P Global Market Intelligence, one rates it at Strong Buy, two say Buy, 17 call it a Hold, two have it at Underperform and one calls it a Sell. Their average price target stands at $58.65. After falling 6.6% in August, WBA now has implied upside of 14% over the next 12 months.
Analysts at Pivotal Research cite “stubborn” pressure on reimbursement rates for prescription medications as one reason for their Hold rating. Pivotal Research’s Ajay Jain, who also has a Hold on Walgreens, says, “We expect a more moderate decline in EBITDA in FY20. In the meantime, the core decline in profitability remains around -10% even as sales metrics improved in the latest quarter.”
Long-term income investors can at least take heart in the fact that, like, 3M, Walgreens has raised its dividend annually for decades.
Market value: $38.0 billion
Dividend yield: 2.3%
Analysts’ average recommendation: 2.95
Travelers (TRV, $145.96) faces numerous headwinds, including declining interest rates, lower core margins and increased competitive pressures, analysts say. As such, there isn’t exactly a lot of passion for shares in the blue-chip insurance company – at least not at current levels.
“Earnings per share peaked around $10.50 to $11.00 in 2014-2015, and have since stagnated as underwriting profits declined by roughly $2 billion,” note William Blair analysts, who rates shares at Underperform (Sell). RBC Capital analysts, who have TRV at Sector Perform (another Hold equivalent), are concerned about recent weakness in core margins.
Of the 21 analysts covering TRV tracked by S&P Global Market Intelligence, three rate the stock at Strong Buy, one calls it a Buy, 13 say Hold, two call it a Sell and two say Strong Sell. Analysts’ average price target of $151 gives TRV stock implied upside of just 3.5% over the next 12 months or so – hence their overall Hold recommendation.
Market value: $208.0 billion
Dividend yield: 2.7%
Analysts’ average recommendation: 2.90
Analysts are mostly cool on Intel’s (INTC, $46.96) short- to mid-term prospects as the semiconductor giant fights off competition from Advanced Micro Devices (AMD) in central processing units (CPUs), among other concerns.
“We are concerned moving forward in light of ongoing or expected cyclical downturns in a variety of INTC’s markets, INTC’s struggle to execute to plan in developing and shipping both its core CPUs as well ancillary products, and increased competition in the CPU space from AMD,” say analysts at Wedbush, who rate shares at Underperform (Sell).
The ongoing trade war with China is also weighing on INTC. Analysts forecast revenue to decline 2.3% in 2019 and increase just 2.5% next year, according to data from Refinitiv.
Wall Street pros have average target price of $54.42 on Intel shares. After tumbling 10% since July 24, the Dow stock now has implied upside of 16% over the next year or so.
Market value: $227.7 billion
Dividend yield: 4.4%
Analysts’ average recommendation: 2.57
Analysts are lukewarm on Verizon (VZ, $55.05), as the Dow’s only telecommunications company bets big on rolling out a high-speed 5G wireless network – which won’t start to move the revenue needle until 2021.
At the same time, the telco faces potentially increased competition for wireless subscribers after the merger of Sprint (S) and T-Mobile (TMUS). Regulatory approval of the deal hinged on Sprint selling some assets to satellite TV company Dish Network (DISH), which intends to build its own nationwide 5G wireless broadband network.
Either way, competition is breathing down Verizon’s neck. “Verizon’s consistently strong operating performance in the wireless category may not be enough to drive further multiple expansion at a time when investors are more likely to question the competitive environment and long-term risks to pricing and margins,” Citi analyst Michael Rollins writes in a recent note.
Analysts expect Verizon to generate average annual earnings growth of just 2.7% over the next three to five years, according to S&P Global Market Intelligence. Their average target price of $59.81 gives VZ implied upside of 8.6% in the next 12 months or so.
Market value: $124.7 billion
Dividend yield: 4.6%
Analysts’ average recommendation: 2.55
International Business Machines (IBM, $140.73) gets an average recommendation of Hold from analysts surveyed by S&P Global Market Intelligence, but it does have its fans.
Morgan Stanley, for instance, resumed coverage of Big Blue on Aug. 1 with an Overweight (Buy) recommendation, noting that the market is underestimating the benefits of its recent acquisition of software company Red Hat.
“IBM is in the later innings of a transformation meant to return the company to growth and margin expansion, both of which kicked in over the past year and should accelerate post the closing of the Red Hat acquisition,” Morgan Stanley analysts say.
Morgan Stanley is in the minority, but it does have company. Of the analysts tracked by S&P Global Market Intelligence, four have IBM at Strong Buy and three say Buy.
A majority of 14 analysts call IBM a Hold, however, and one even has it as a Sell. The pros’ average price target of $154.05 is bullish nonetheless, giving IBM stock implied upside of 9.5% over the next 12 months or so.
Market value: $68.7 billion
Dividend yield: 3.4%
Analysts’ average recommendation: 2.48
As the world’s biggest maker of construction and mining equipment, Caterpillar (CAT, $122.08) is something of a bellwether for the health of the global economy.
Given the company’s results so far in 2019, the outlook is murky at best.
The industrial giant cited weakness in China for a third consecutive quarter when it posted disappointing earnings in late July. In response, Buckingham Research downgraded CAT to Neutral (Hold) from Buy, noting that “the probability of lower earnings growth in 2020 (or even a decline) is rising as trade uncertainty and global growth concerns persist.”
Some analysts see value in CAT stock at current levels. Seven say shares are a Strong Buy and six call it a Buy, according to S&P Global Market Intelligence. Of the remaining analysts surveyed, 10 have CAT at Hold and three rate it at Strong Sell.
CAT has struggled over the past month, losing nearly 10%. But an average price target of $146.71 gives Caterpillar implied upside of 20% over the next 12 months.
Market value: $300.4 billion
Dividend yield: 5.0%
Analysts’ average recommendation: 2.47
Analysts are mostly cautious about the prospects for shares in Exxon Mobil (XOM, $70.96) over the next year or so, following three straight quarters of year-over-year earnings declines – even as the energy giant nearly doubled its output of shale oil in Texas’s Permian Basin.
The largest U.S. oil producer by volume is struggling with weaker results in natural gas, chemicals and refining. Analysts at Credit Suisse, who rate shares at Neutral, say the outlook for the second half of 2019 remains “weak,” hurt by flat upstream production, continued softness in chemicals and refining margins.
The analysts add that XOM stock, which trades around 14 times Wall Street’s forward-looking earnings estmiates, is relatively expensive compared with its peers.
Five analysts polled by S&P Global Market Intelligence rate Exxon Mobil at Strong Buy, one calls it a Buy, 14 say Hold and one has it at Sell. Their average price target of $84.31 gives this Dow stock implied upside of 19% in the next 12 months.
Market value: $353.1 billion
Dividend yield: 3.3%
Analysts’ average recommendation: 2.36
Perhaps the best way to describe analysts’ consensus view of JPMorgan Chase (JPM, $110.43) is “cautiously optimistic.” The nation’s biggest bank by assets is the first our Dow stocks to score an average rating of Buy – but it’s tempered at best.
Analysts at Sandler O’Neill, who rate shares at Hold, say the money center bank’s second-quarter results, released in mid-July, were “modestly disappointing.”
In the bull camp, Credit Suisse rates JPM at Outperform (Buy), citing the bank’s ability to deliver sustainable returns despite macroeconomic headwinds such as falling interest rates.
Analysts average target price of $119.46 gives JPM stock implied upside of 8.2% over the next year or so. But that comes from a pretty mixed consensus. In total, 14 analysts surveyed by S&P Global Market Intelligence call JPMorgan a Hold. However, seven rate it at Strong Buy and six say it’s a Buy. One analyst calls it a Sell.
By the way, Warren Buffett, chairman and CEO of Berkshire Hathaway (BRK.B), is a JPM bull. Berkshire initiated a position in JPM in the third quarter of 2018 and has been boosting it ever since. Buffett’s holding company upped its stake by 40% in the fourth quarter of last year, and again by 18% in the first quarter of 2019.
Market value: $205.4 billion
Dividend yield: 3.9%
Analysts as a group became less bullish on Pfizer (PFE, $36.95) stock following the pharmaceutical giant’s late-July decision to combine Upjohn, its off-patent drug business best known for Lipitor and Viagra, with generic-drug maker Mylan (MYL). Shares have lost their way, too, tumbling nearly 14% since the deal was announced July 29.
“Our thesis that Pfizer would outperform due to improving prospects was invalidated by a re-set of earnings on both sides of the business,” analysts at Morgan Stanley wrote after the deal announcement. “Pfizer announced it is exiting its Upjohn business, but the real news was weaker underlying earnings (in the remaining company).” Morgan Stanley downgraded PFE to Equal Weight (Hold) from Overweight.
Bank of America Merrill Lynch likewise downgraded PFE, to Neutral from Buy, on the merger news.
Of the 14 analysts covering Pfizer tracked by S&P Global Market Intelligence, five rate the stock at Strong Buy, one has it at Buy, seven say Hold and one calls it a Strong Sell. But as a whole, PFE has an average price target of $43.77 that gives it implied upside of 18% over the next year.
Market value: $345.1 billion
Dividend yield: 2.9%
Analysts’ average recommendation: 2.35
Johnson & Johnson (JNJ, $130.77) gets and average score that equates to Buy, but there are reasons to be cautious.
On the plus side, the health care giant has some hit drugs on its hands. Second-quarter results included strong showings for blood cancer drugs Darzalex and Imbruvica, as well as immunology drugs Stelara and Tremfya. JNJ also has a number of promising projects in the pipeline.
At the same time, JNJ is embroiled in litigation over allegations that it contributed to the opioid epidemic and knew about asbestos in its talc-based products. Analysts generally applaud JNJ’s fundamentals but say that drama and uncertainty surrounding ongoing litigation could hold back shares.
“While acknowledging that the stock will continue to be volatile on the litigation headlines, we remain comfortable with our estimates, expect revenue growth to accelerate in 2020, and believe the valuation offers downside support,” say analysts at Raymond James, who rate JNJ at Outperform.
Wall Street’s average target price of $148.75 gives JNJ implied upside of 14% in the next year or so. The healthy dividend yield – and a 57-year streak of annual dividend increases – make a compelling case for income investors.
Market value: $74.1 billion
Dividend yield: 2.5%
Analysts’ average recommendation: 2.33
Analysts as a group are moderately bullish on Goldman Sachs (GS, $206.01), as Wall Street’s preeminent investment bank continues to outpace rivals in stock trading and other financial activities.
“Equity trading revenue strength stood out relative to peers increasing by 14% quarter-over-quarter and 6% year-over-year (in Q2),” note analysts at Sandler O’Neill, who rate shares at Buy. “Management cited strength across equity products, market share consolidation, and low-touch execution investments bearing fruit.”
Of the 27 analysts covering GS tracked by S&P Global Market Intelligence, eight rate it a Strong Buy, five call it a Buy, 12 say Hold, one says Sell and one rates it at Strong Sell. Collectively, they’re looking for implied upside of 15%, with an average price target of $237.25.
It’s worth noting that Warren Buffett is a fan. With a 4.9% stake in GS, Berkshire Hathaway is the firm’s fourth-largest shareholder.
Market value: $890.3 billion
Dividend yield: 1.6%
Analysts’ average recommendation: 2.30
Speaking of Warren Buffett, perhaps no one is a bigger believer in Apple (AAPL, $197.00). Berkshire Hathaway owns 5.5% of the company from Cupertino, making it the iPhone-maker’s third-largest shareholder. Indeed, Buffett is so bullish on Apple that Berkshire’s stake, worth roughly $47 billion, accounts for almost a quarter of its entire equity portfolio.
Analysts are generally bullish, too. Accelerating growth in services revenue and AAPL’s overall resilience despite sluggish demand from China are making analysts increasingly confident about the gadget-maker’s growth prospects.
“While China remains a wild card in terms of how quickly iPhone demand will ramp in this key region, we believe the stage is now set for CEO Tim Cook to put his finishing touches on what will be a defining comeback and chapter in his legacy and Apple’s future heading into FY20 with a number of tailwinds abound,” write analysts at Wedbush, who rate shares at Outperform.
Here’s the breakdown of analysts’ recommendations tracked by S&P Global Market Intelligence: 17 have AAPL at Strong Buy, four say Buy and 18 rate shares at Hold – and a foursome of high-conviction bears that call it a Strong Sell. The average target price of $221.85 gives Apple implied upside of 13% over the next year or so.
Market value: $286.0 billion
Dividend yield: 2.6%
Analysts’ average recommendation: 2.25
Analysts were delighted when Procter & Gamble (PG, $114.28) reported its strongest organic sales growth in 13 years for the quarter ended June 30. (Organic sales strip out the effects of acquisitions and currency exchange.) P&G stock even notched an all-time high on the news.
The consumer products giant has been forced to raise prices to compensate for higher shipping and raw material costs. The fact that consumers were willing to pay more for premium brands such as Tide detergent, Crest toothpaste and Pampers diapers is encouraging after years in which cheaper competitors ate market share.
Analysts’ average rating stands at Buy, but after the run-up in PG stock, some are voicing caution.
“We maintain a Hold rating, believing shares are near fair value given valuation is at a modest discount to five- and 10-year averages relative to the S&P 500 and S&P Consumer Staples Index, appropriate given recent share loss and competitive pressure in P&G’s categories,” write analysts at Stifel.
Long-term investors should note that P&G is a champion of income growth. Its dividend dates back to 1890, and it has been improved on an annual basis for 63 years.
Market value: $101.7 billion
Dividend yield: 1.3%
Analysts’ average recommendation: 2.23
Of the 30 analysts covering American Express (AXP, $122.55) tracked by S&P Global Market Intelligence, 10 rate shares at Strong Buy, four say Buy, 15 have it at Hold and one says Sell.
One investor who has never wavered in his faith in the credit card company, however, is Warren Buffett.
The Oracle of Omaha first bought shares in AmEx in 1963. Today, Berkshire Hathaway, which owns more than 18% of American Express’ shares outstanding, is by far the company’s largest shareholder. Going by analysts’ average recommendation, AXP remains a buy at current levels too. It’s also a top stock pick of hedge funds.
That said, there’s a reason why 15 analysts have AXP at Hold. Wall Street’s average price target of $131.72 gives the stock implied upside of just 7.5% in the next 12 months of so.
Sandler O’Neill analysts, who rate shares at Buy, expect American Express to buy back $4.1 billion in stock this year and another $5.2 billion in 2020.
Market value: $223.5 billion
Dividend yield: 3.1%
Analysts’ average recommendation: 2.22
Coca-Cola (KO, $52.27) is another longtime Warren Buffett holding that’s gaining love from analysts and traders. Strong second-quarter results and an upbeat forecast pushed the beverage company’s shares to a record high on July 23.
Although some of the fizz has gone out of shares since then, analysts as a group remain bullish, in large part due to Coca-Cola’s success in selling energy and coffee drinks.
“The company is executing well against its strategy to becoming a total beverage company – driving both organic revenue and earnings per growth,” say analysts at RBC Capital Markets, who rate KO at Outperform. “This level of performance paired with a favorable interest rate environment will likely drive shares higher.”
Analysts average target price of $56.92 gives KO stock implied upside of 9% over the next year or so. Long-term income investors can take comfort in Coca-Cola’s dividend streak. Indeed, the company has increased its payout annually for more than half a century.
Market value: $33.0 billion
Dividend yield: 6.3%
Analysts’ average recommendation: 2.21
Dow Inc. (DOW, $44.43) replaced DowDuPont in the blue-chip average in April after the chemical giant broke up into three smaller companies. Although analysts as a group skew bullish on the stock, a downbeat outlook for the global economy is making them increasingly cautious on the name.
Analysts at Susquehanna downgraded Dow to Neutral from Positive (Buy) in late July, noting that the specialty chemical company’s fundamentals are “deteriorating.” Bank of America Merrill Lynch cut its rating to Neutral from Buy, saying Dow’s prospects are “stuck in neutral” given soft global demand and adequate supply of specialty chemicals. Citigroup likewise downgraded shares in late July, to Neutral from Buy.
Nonetheless, Dow remains in the consensus Buy camp. Nine analysts call it a Buy, sure, but five say Buy, and importantly, five more rate the stock a Strong Buy. Their average target price of $55.39 gives DOW stock implied upside of about 25% in the next 12 months or so. And as a whole, they think the company will deliver average annual earnings growth of 6% over the next three to five years.
Market value: $306.2 billion
Dividend yield: 2.0%
Analysts’ average recommendation: 2.18
The escalating U.S.-China trade dispute could be beneficial to Walmart (WMT, $107.27), analysts say.
“While the tariff and trade tensions are expected to have a minimal impact on Walmart’s business, as two-thirds of products are sourced from the U.S. and the other third is procured from a variety of countries, the company views tariffs and a potential economic recession as a possible opportunity,” note analysts at Stifel, who rate shares at Hold.
The world’s largest retailer has already taken advantage of bankruptcies in categories like footwear and toys – for example, Payless ShoeSource and Toys R Us – and will continue that strategy, the analysts add.
Guggenheim analysts are even more bullish, with a Buy call on the stock.
“We continue to believe WMT’s resources uniquely position it to successfully evolve in an ever-changing retail environment,” Guggenheim says. “While trade concerns/tariffs may create quarter-to-quarter fluctuations, we believe the management team will astutely navigate any changes.”
Of the 34 analysts covering WMT tracked by S&P Global Market Research, 12 say it’s a Strong Buy, seven have it at Buy, 13 rate it at Hold, one says Sell and one rates it at Strong Sell. Their average target price of $112.16 isn’t terribly high, though, implying less than 5% upside over the next year.
Market value: $187.1 billion
Analysts’ average recommendation: 2.05
Analysts as a group remain bullish on Boeing (BA, $332.45), but that sentiment almost entirely hinges on when its grounded 737 Max jets get flying again. Airlines around the world grounded the best-selling airliners in March amid safety concerns.
CFRA analysts, who rate BA shares at Buy, expect regulators to re-certify the 737 Max in September or October. The planes should start flying again in the fourth quarter. CFRA notes that orders for the 737 Max were delayed, not canceled.
Analysts at Canaccord Genuity are taking a more cautious stance, rating BA stock at Hold. “We believe there is still significant risk associated with the 737 Max return to service and headline risk as BA navigates the recertification process,” Canaccord writes.
Analysts’ average price target of $418.86 is lofty, implying 26% in expected upside over the next 12 months. The Dow could use the lift. With its lofty price-per-share, Boeing is the most influential stock in the price-weighted industrial average.
Market value: $229.7 billion
Analysts’ average recommendation: 1.94
Analysts are bullish on Home Depot (HD, $208.80) even as it bumps up against their price targets. With an average target price of $209.38, Home Depot stock has barely any upside at current levels.
The nation’s largest home improvement chain reports earnings on Aug. 20. Depending on results, analysts are either going to have to raise their price targets or downgrade the stock on valuation. For the time being, 15 analysts call HD a Strong Buy, six have it at Buy, 11 say Hold and one rates it a Sell, according to S&P Global Market Intelligence.
Analysts at Guggenheim remain firmly in the bull camp with a Buy rating. They think any negative impact from the U.S.-China trade war is already reflected in HD’s stock price. Guggenheim predicts that same-store sales, a critical retail industry metric, will ramp up in the second half of 2019, helped by investments Home Depot has made in its business. Guggenheim’s target price of $230 gives HD implied upside of more than 10% from current levels.
Goldman Sachs is even more bullish, citing the chain’s acumen at grabbing market share. GS analysts initiated coverage of Home Depot in July with a Buy rating and target price of $235.
Market value: $255.6 billion
Analysts’ average recommendation: 1.93
Walt Disney (DIS, $141.87) recently coughed up disappointing third-quarter results, but analysts still like DIS stock’s prospects.
Costs associated with building out its streaming media business, the Fox acquisition and a soft opening at Disneyland’s Star Wars: Galaxy’s Edge addition all hurt results, but analysts say Q3 was a transition quarter for Disney.
Rosenblatt Securities reaffirmed its Buy rating on DIS, despite a third quarter that was “messier than expected.” Analysts at JPMorgan Chase say Disney is a buy on the dip after the post-earnings selloff. “If we liked the stock before earnings, we love it on any weakness,” says JPMorgan, which rates the stock at Overweight.
S&P Global Market Intelligence counts 13 analysts with a Strong Buy recommendation on DIS and five who call it a Buy. Eight analysts rate the Dow stock at Hold and one calls it a Strong Sell.
Market value: $225.2 billion
Analysts’ average recommendation: 1.89
The “smart money” expects solid returns from shares in Cisco Systems (CSCO, $52.60) over the next 12 months. Their average price target of $59.04 gives CSCO implied upside of more than 12%. The networking giant also sports a healthy dividend yield.
At Cowen, analysts say Cisco is one of their “best ideas” for 2019. Easier year-over-year earnings comparisons and the ongoing shift to cloud-based, recurring software revenue make the stock a buy.
JPMorgan analysts, who rate CSCO at Overweight, applauded Cisco’s recent $2.6 billion deal to acquire Acacia Communications (ACIA). The write that the move will strengthen CSCO’s core portfolio of optical networking technologies.
Overall, 12 analysts surveyed by S&P Global Market Intelligence rate CSCO at Strong Buy, five have it at Buy and nine call it a Hold. They expect the tech firm to generate average annual earnings growth of 7.4% over the next three to five years.
Market value: $227.4 billion
Dividend yield: 4.0%
Analysts’ average recommendation: 1.86
Analysts are bullish on Chevron (CVX, $119.38) as declining capital expenditures and production growth from high-margin products drive higher free cash flow – how much cash companies have left over after they meet all their obligations.
The energy giant is enjoying better-than-expected production from its operations in Texas’ Permian Basin, note analysts at Jefferies, who call CVX a “Franchise Pick.” (Franchise Picks are the highest-conviction, Buy-rated stocks from the Jefferies U.S. Research Team.)
Jefferies expects ample FCF to allow Chevron to increase its dividend by 5% annually and still have the capacity to buy back $28 billion in stock through 2021. Goldman Sachs, which rates shares at Buy, figures that between buybacks and dividends, CVX boasts a yield of 6.4%.
“We are confident that between 2019-2023, Chevron will be able to announce new sources of growth that we believe will address investor concerns about the long-term production outlook,” Goldman’s analysts add.
With an average price target of $137.91, CVX stock has implied upside of more than 15% by price appreciation alone.
Market value: $162.6 billion
Dividend yield: 2.2%
Analysts’ average recommendation: 1.76
McDonald’s (MCD, $214.08) is racking up one strong quarter after another, helped by its rollout of digital menu boards, the “2 for $5 Mix and Match Deal” and other initiatives. Although analysts on average remain bullish on MCD, a 38% gain over the last year – vs. a flat performance for the S&P 500 – have some folks wondering about valuation.
“McDonald’s is enjoying sales momentum in domestic and international markets, and has essentially completed a business model transformation that should produce more predictable earnings and higher cash flow conversion,” note Stifel analysts. Nevertheless, they rate shares at Hold and recommend clients await a better entry point.
That, however, is the minority opinion on the Street, as 17 analysts rate MCD at Strong Buy, seven say Buy and nine call it a Hold, according to S&P Global Market Intelligence. Long-term income investors should know that McDonald’s has raised its dividend every year for 42 years.
Market value: $127.4 billion
Dividend yield: 1.1%
Analysts’ average recommendation: 1.72
Traders like to whip Nike (NKE, $81.30) around on headlines about the U.S.-China trade dispute, but analysts are keying in on its strategy of selling directly to consumers.
The athletic footwear and apparel giant has scooped up three consumer data and analytics firms since 2018 as part of its so-called Consumer Direct Offense initiative. The digital push is aimed at knowing more about what customers want and when they want it. Analysts love the implications of Nike relying less on retailers.
“With a return to growth in North America and our view of the athletic category as having long-duration global secular and structural tailwinds, we see Nike as uniquely positioned to execute to a more direct model,” say Stifel analysts, who rate NKE at Buy. “We expect this translates to growth, margin improvement and strengthening return on invested capital longer-term.”
Nike has 16 Strong Buy recommendations and six Buy ratings, according to S&P Global Market Intelligence. Six analysts call it a Hold and one says Sell. Their average target price of $94.86 gives NKE stock implied upside of about 17% over roughly the next year.
Market value: $111.1 billion
There are a lot of moving parts at United Technologies (UTX, $128.80) these days.
The industrial conglomerate in November closed its $30 billion of acquisition of defense contractor Rockwell Collins and said it would split into three separate companies. UTX will spin off its Otis elevator unit and Carrier buildings division in 2020 to focus on aerospace.
But the really big news came in June, when UTX announced a merger with defense contractor Raytheon (RTN). The deal, pending approval, would create a company with a market value of more than $100 billion after spinoffs. Only Boeing would be a bigger aerospace-and-defense company by revenue.
Analysts applaud the idea of United Technologies as a pure-play stock in the aerospace and defense sector with massive scale.
“We like the combination as it creates an aerospace & defense behemoth with breadth and depth in a wide array of markets,” say analysts at Bank of America Merrill Lynch, who rate shares at Buy. The combined company would make everything from Pratt & Whitney engines to F-35 jet fighters.
Of the 18 analysts covering UTX tracked by S&P Global Market Intelligence, 10 rate shares at Strong Buy, three say Buy and five have it at Hold. On average, they’re expecting upside potential of about 20% over the next year, with a collective price target of $154.94.
Market value: $216.0 billion
Analysts’ average recommendation: 1.53
Merck (MRK, $84.35) has a huge, blockbuster hit drug on its hands.
Cancer drug Keytruda alone is on pace to generate $10 billion a year in sales, which allowed Merck to hike its 2019 revenue and sales forecasts when it posted quarterly results in July.
Indeed, sales of Keytruda soared 58% in the second quarter to $2.63 billion. That easily topped analysts’ estimates of $2.5 billion, according to Reuters. Vaccine sales, which are another growth driver for the pharma giant, rose 33% to $2 billion in the latest quarter.
Keytruda already is approved for treatment of lung cancer, melanoma, head and neck cancer, classical Hodgkin’s lymphoma and bladder cancer. In June, the Food and Drug Administration expanded approval of the cancer-fighting drug to include additional protocols.
Of the 17 analysts covering MRK tracked by S&P Global Market Intelligence, 11 rate shares at Strong Buy, three have it at Buy and three call it a Hold. Their average target price of $94.50 gives Merck stock implied upside of about 12% over the next year or so. Looking further down the road, analysts expect the pharma company to deliver average annual earnings growth of almost 9% over the next three to five years.
Market value: $386.4 billion
Dividend yield: 0.6%
Analysts’ average recommendation: 1.51
Few blue-chip stocks get more love from analysts and big-shot investors than Visa (V, $172.48).
As the world’s largest payments network, Visa is well-positioned to benefit from the growth of cashless transactions and digital mobile payments. Analysts polled by S&P Global Market Intelligence expect Visa’s earnings to increase an average of almost 17% a year over the next three to five years.
No wonder Visa is hugely popular with hedge fund managers. Warren Buffett likes it too. Berkshire Hathaway owns 0.5% of Visa’s shares outstanding, according to data from S&P Global Market Intelligence. Although Berkshire’s investment in Visa was made by one of Buffett’s lieutenants – Todd Combs and/or Ted Weschler (Buffett won’t say which) – he wishes he had thought of it himself.
“If I had been as smart as Ted or Todd, I would have (bought Visa or Mastercard),” Buffett told shareholders at the 2018 annual meeting.
Wall Street is solidly bullish on Visa, as well. Of the analysts tracked by S&P Global Market Intelligence, 23 call it a Strong Buy, 12 have it at Buy and two say it’s a Hold. One analyst rates Visa at Sell.
Market value: $1.03 trillion
Dividend yield: 1.4%
Analysts’ average recommendation: 1.46
Microsoft (MSFT, $134.69) regularly ranks as the No. 1 stock most popular with hedge funds. It’s also the world’s most valuable company. Indeed, MSFT is the only publicly traded firm with a market value of more than $1 trillion.
The folks at the software giant’s Redmond, Wash., headquarters should take a deep bow. The company’s transition to subscription-based services and cloud computing has been a smashing success.
Microsoft’s fiscal Q4 report, released in July, was “an absolute blow-out quarter across the board with no blemishes,” write Wedbush analysts, who rate shares at Outperform. “While the stock has been very strong and a trillion-dollar market cap is now reached, we believe the cloud party is just getting started in Redmond.”
Analysts forecast average earnings growth of almost 12% a year for the next three to five years. Of the 35 analysts covering the stock tracked by S&P Global Market Intelligence, 23 rate MSFT at Strong Buy and 10 say Buy. One analyst has a Hold rating and one calls it a Strong Sell.