The Dow Jones Industrial Average is made up of 30 stocks considered tops in their industries. But naturally, some rank better than others based on the opinions of the analysts who cover them.
Here are the top five Dow Industrial stocks as ranked by a group of analysts.
by Dan Burrows, Contributing Writer, Kiplinger
#5: Visa
- Market value: $495.5 billion
- Dividend yield: 0.6%
- Analysts’ average recommendation: 1.58 (Buy)
Although the pandemic greatly curtailed spending in a number of Visa’s (V, $232.31) categories – most notably travel and entertainment – those headwinds should now be in the past.
Indeed, the gradual economic reopening – and accelerating secular growth in cashless payments, helped by the perception that cash is “dirty” – make a solid bull case for Visa stock.
Piper Sandler upgraded Visa to Overweight (the equivalent of Buy) from Neutral (Hold) in early June, thanks to a return to post-COVID-19 normal and certain advantages over its largest competitor.
“We expect Visa to benefit more from a vaccine-driven U.S. recovery than Mastercard,” writes Piper Sandler analyst Christopher Donat in a note to clients.
“Visa generated 45% of its pre-pandemic revenue from the United States, compared to only 32% for Mastercard. We believe higher vaccine rates in the United States are already driving higher domestic activity, which we view as a prerequisite to future cross-border travel.”
The company is also getting in on the cryptocurrency craze.
“Visa looks to be an infrastructure provider and enabler for crypto transactions,” writes William Blair analyst Robert Napoli (Outperform).
“Visa is now working with 50 different digital currency platforms, up from the recently published 35.”
Longer term, 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.
Indeed, the Street expects Visa’s EPS to increase at an average annual rate of more than 20% over the next three to five years.
Twenty-one analysts rate the Dow stock at Strong Buy, 13 say Buy and three have it at Hold, according to S&P Global Market Intelligence. One analyst has a Sell rating on the name.
#4: Salesforce.com
- Market value: $218.6 billion
- Dividend yield: N/A
- Analysts’ average recommendation: 1.60 (Buy)
Salesforce.com (CRM, $236.09) – which is one of the newest Dow Jones stocks, added just last year – was doing cloud computing before cloud-based services were cool.
The stock has been clobbering the broader market on a trailing return basis for years, and analysts expect more outsized gains to come.
After all, CRM is ideally positioned to take advantage of today’s trends, the Street says.
“The pandemic appears to have accelerated the already powerful secular trend toward enterprise digital transformation,” writes Argus Research’s Joseph Bonner (Buy).
“The new work-from-home paradigm (or perhaps the developing home/office hybrid) has increased demand for software solutions for cloud computing, distributed computing, edge computing and collaboration software.”
Salesforce was the top customer relationship software provider even before the pandemic hit, Bonner adds.
With the digitization trend only gaining momentum, CRM is rapidly innovating, taking market share in its core markets and expanding internationally.
Stifel Research (Buy) concurs with that view, and notes that the company’s $28 billion acquisition of Slack last year is another reason to be optimistic about CRM.
“M&A remains a big component of the Salesforce story, as the company followed up its big MuleSoft acquisition of 2018 with an even larger deal in Tableau last year,” writes Stifel’s Tom Roderick.
“We believe these moves signal urgency on the part of management to capitalize on one of the more robust IT spending environments it has observed in recent years.”
Twenty-eight analysts covering CRM tracked by S&P Global Market Intelligence rate the stock at Strong Buy, 10 say Buy and nine call it a Hold.
They forecast the company to generate average annual EPS growth of almost 22% for the next three to five years.
#3: Walt Disney
- Market value: $319.9 billion
- Dividend yield: N/A
- Analysts’ average recommendation: 1.59 (Buy)
Coronavirus took a huge bite out of some of Walt Disney’s (DIS, $176.04) most important businesses: namely, its theme parks and studios.
But after encouraging quarterly results, analysts say business is set to bounce back in a big way.
Disneyland and other California amusement parks have reopened with restrictions. And admissions at Florida’s Disney World continue to climb.
“With mask mandates lifted and capacity constraints loosened further, we would not be surprised to see a step change in attendance in the near future,” writes Deutsche Bank analyst Bryan Kraft (Buy).
But that’s nothing compared to what DIS has on its hands in the streaming media wars.
Disney+ is a smashing success. The streaming platform, which launched in November 2019, has already amassed almost 100 million subscribers – a staggering rate of growth.
Consider that Disney+ now has about half as many subscribers as Netflix (NFLX) – but Netflix had a roughly 12-year head start.
“The old saying that ‘luck favors the prepared’ can be applied to Disney’s November 2019 launch of the Disney+ video service,” writes Argus Research analyst Joseph Bonner (Buy).
“The launch, exemplified by rapid subscriber acquisition, was a success even before the pandemic.
Disney has the assets, intellectual property and management team needed for a robust revival as COVID-19 recedes.”
Sixteen analysts rate the Dow stock at Strong Buy, per S&P Global Market Intelligence, while six say Buy and five call it a Hold.
They forecast average annual EPS growth of more than 23% for the next three to five years.
#2: UnitedHealth Group
- Market value: $378.5 billion
- Dividend yield: 1.5%
- Analysts’ average recommendation: 1.58 (Buy)
UnitedHealth Group (UNH, $401.10) is a hedge-fund favorite, and Wall Street gives it high marks too.
As the largest health insurer by both market value and revenue – and a member of the Dow Industrials to boot – UNH is sort of a must-have stock for institutional investors seeking broad exposure to the healthcare sector.
Meanwhile, like many of the other Dow Jones stocks, analysts’ consensus recommendation on the name comes to Buy.
Of the 27 analysts covering the stock tracked by S&P Global Market Intelligence, 16 rate UNH at Strong Buy, six say Buy, three have it at Hold and one calls it a Sell.
Furthermore, analysts have become increasingly bullish over the past two months, with their average recommendation score on the Dow stock dropping from 1.68 to 1.58, or on the cusp of a Strong Buy call.
“With the increase in COVID-19 vaccinations, we expect medical utilization patterns to return to normal levels, while at the same time we anticipate higher utilizations resulting from missed medical visits and delayed electives,” writes CFRA Research analyst Sel Hardy, who rates the stock at Strong Buy.
A significant part of the bulls’ investment thesis on the name comes down to valuation. UNH trades at less than 19 times estimated earnings for 2022.
They go for an even more attractive 16.6 times 2023’s expected earnings. And yet EPS is forecast to increase at an average annual pace of more than 14% for the next three to five years.
Put succinctly, UNH looks like a rare bargain stock in an otherwise pricey market. The S&P 500 currently goes for around 22 times earnings estimates.
#1: Microsoft
- Market value: $1.9 trillion
- Dividend yield: 0.9%
- Analysts’ average recommendation: 1.33 (Strong Buy)
Microsoft (MSFT, $253.59) might be second only to Apple when it comes to market value, but it beats the iPhone maker handily when it comes to analysts’ ardor.
Indeed, it’s the only one of the 30 Dow Jones stocks to receive a consensus recommendation of Strong Buy.
What gives MSFT the edge over Apple (Buy) when it comes to the Street’s sentiment is its overwhelming success in cloud services.
Wedbush analyst Daniel Ives (Outperform) called Microsoft’s most recent quarterly results “another cloud masterpiece” as the company continued to see “massive” momentum in that business.
“Microsoft remains our favorite large-cap cloud play and we believe the stock (despite being on a treadmill path of late) will start to move higher over the coming quarters as the Street further appreciates the cloud transformation story in Redmond,” Ives writes in a note to clients.
“While many tech stocks overall are all being lumped together as part of the work-from-home trade, we believe the growth story at MSFT is not slowing down as more enterprises/governments head down this cloud path over the coming years.”
CFRA Research analyst John Freeman (Strong Buy) adds that investors shouldn’t lose sight of the company’s other growth areas.
For example, the launch of the Xbox Series X gaming console drove 51% year-over-year growth in Xbox content and services revenue in the final calendar quarter of 2020.
And let’s not forget MSFT’s suitability for income investors.
This component of the Dow Jones Industrial Average offers a modest dividend yield of 0.9%, but it has been improving its payout at a robust clip of more than 9% compounded annually over the past five years.
Twenty-seven analysts rate MSFT at Strong Buy, 11 say Buy and one calls it a Hold, per S&P Global Market Intelligence.
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