Top 10 Analyst-Ranked Dow Jones Stocks

• Market value: $433.8 billion
• Dividend yield: 1.6%
• Analysts’ consensus recommendation: 1.88 (Buy)

Home Depot (HD, $415.40) has long been one of the Street’s favourite ways to play the housing market.

Turns out, HD also was a profitable way to play COVID-19 – and the trends unleashed by lockdowns and other behavioural shifts should continue to drive further share-price outperformance, bulls say.

And that’s after a year-to-date gain of nearly 60%, making HD the best performer among Dow Jones stocks so far in 2021.

Although cost pressures, valuation and difficult comparisons to past pandemic-inflated results have some analysts sitting on the sidelines, the Street’s consensus recommendation comes to Buy.

Of the 33 analysts covering HD tracked by S&P Global Market Intelligence, 16 rate it at Strong Buy, seven say Buy, nine have it at Hold and one slaps a Strong Sell opinion on shares.

They forecast the nation’s largest home improvement retailer to generate average annual EPS growth of more than 12% over the next three to five years.

Meanwhile, HD stock trades at 26.8 times analysts’ 2022 EPS estimate – a valuation some pros see as a bit stretched.

Although supply-chain issues and the challenge of topping its own impressive past performance loom large,

“HD continues to exceed expectations, despite very challenging prior year comparisons, and we believe the company has a solid path towards continuing this trend in calendar year 2021 and heading into calendar year 2022,” writes Raymond James analyst Bobby Griffin (Outperform).

• Market value: $277.6 billion
• Dividend yield: N/A*
• Analysts’ consensus recommendation: 1.75 (Buy)

As a sprawling media and entertainment conglomerate, analysts see Walt Disney (DIS, $152.71) as an obvious way to play the post-COVID economy.

True, Disney stock is off almost 16% for the year-to-date, trailing the broader market by more than 40 percentage points.

But analysts say it’s only a matter of time before a sort of “recovery trade 2.0” re-inflates DIS shares.

Indeed, they forecast the company to generate average annual EPS growth of more than 32% 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.

The Street’s consensus recommendation stands at Buy in anticipation of better times ahead. Indeed, with an average target price of $196.87, analysts give DIS stock implied upside of nearly 30% in the next 12 months or so.

“While the market may have been disappointed in Disney’s fiscal fourth-quarter results, the company continued to rebound from its staggering pandemic lows, with strength in its theme parks and direct-to-consumer businesses,” writes Argus Research analyst Joseph Bonner (Buy).

 

“We expect this momentum to continue, but note that Disney still faces risks from the uncertain course of the pandemic.”

Fifteen analysts rate DIS stock at Strong Buy, five say Buy and eight have it at Hold, per S&P Global Market Intelligence.

* Disney suspended its dividend in May 2020 in response to the COVID-19 crisis.

• Market value: $198.0 billion
• Dividend yield: 2.0%
• Analysts’ consensus recommendation: 1.72 (Buy)

McDonald’s (MCD, $264.97) continues to come back from the pandemic, which caused a steep drop in in-store traffic.

Naturally, analysts see the stock as a COVID-19 recovery play, both at home and abroad.

Although shares have essentially only matched the performance of the S&P 500 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.

“Consistent with our upgrade thesis from January, the improving international business represents an unlock for upside in the financial model – a theme we believe remains under-appreciated,” writes Oppenheimer analyst Brian Bittner.

 

“This, combined with very solid U.S. performance (despite industry headwinds), as well as accelerating unit growth and resumption of share repurchases, are positive dynamics for our Outperform thesis.

 

We believe MCD’s valuation discount secures a solid risk/reward.”

Bittner’s view is in the majority on the Street, where 19 analysts rate MCD at Strong Buy, eight say Buy and nine call it a Hold.

\They forecast the international fast food chain to generate average annual EPS growth of 13.8% over the next three to five years, per S&P Global Market Intelligence.

This member of the S&P 500 Dividend Aristocrats has increased its payout annually for 45 years.

• Market value: $390.6 billion
• Dividend yield: 1.6%
• Analysts’ consensus recommendation: 1.70 (Buy)

If there’s one thing analysts and investors alike have learned about Walmart (WMT, $141.03), it’s that you don’t bet against the world’s largest retailer – and biggest company by revenue – for too long.

Heck, the discount retail chain is among the top 10 best global stocks of the past 30 years.

Shares are all but flat for the year-to-date, hurt by worries about inflation, the global supply chain and their impact on WMT’s profit margins.

Analysts, however, are less fretful than the stock market when it comes to WMT’s prospects. In fact, they give shares a consensus recommendation of Buy, with high conviction.

Of the 37 analysts covering WMT tracked by S&P Global Market Intelligence, 21 rate it at Strong Buy, seven call it a Buy, eight have it at Hold and one says Sell.

With an average target price of $168.58, they give WMT stock implied upside of nearly 20% in the next 12 months or so.

“WMT is navigating the tough supply chain environment well, as inventories are up 11% year-over-year, which should result in a strong holiday season,” writes CFRA Research analyst Arun Sundaram.

 

We expect market share gains to continue since WMT’s price gap versus competition typically widens during periods of heightened inflation.”

• Market value: $46.2 billion
• Dividend yield: 0.7%
• Analysts’ consensus recommendation: 1.68 (Buy)

Supply-chain issues, inflation and the return of workers to their offices has some analysts saying Nike (NKE, $169.06) stock is more than fairly valued, but the bulk of the Street sees outperformance ahead.

CFRA Research analyst Zachary Warring, for example, downgraded NKE to Sell from Hold in early November, citing a share price that’s gotten ahead of itself.

“The company now trades near historically high [valuation] as supply-chain issues and inflation persist,” Warring says.

 

“We also expect the activewear tailwinds are fading as more people go back to work and school as vaccine rates continue to rise and new COVID-19 therapeutics become available.”

Warring’s concern about a “stretched” valuation is the minority view among analysts, who give NKE a consensus recommendation of Buy.

Of the 31 analysts issuing opinions on NKE, 17 call it a Strong Buy, nine say Buy, four have it at Hold and one rates it at Strong Sell.

It does, however, partly explain why NKE stock trails the broader market for the year-to-date.

Although analysts forecast the athletic footwear and apparel maker to generate average annual EPS growth of 16.1% over the next three to five years, shares do trade at a hefty 48 times estimated EPS for 2022.

“Nike’s strong brand and product pipeline have enabled it to raise prices and increase sales of both apparel and footwear,” writes Argus Research analyst John Staszak (Buy).

 

“We also believe that some retailers seeking to boost weak sales are turning to Nike to increase customer traffic, increasing NKE’s bargaining power as a supplier.”

• Market value: $2.9 trillion
• Dividend yield: 0.5%
• Analysts’ consensus recommendation: 1.67 (Buy)

Apple (AAPL, $179.45), the world’s largest publicly traded company, 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.

That’s because Apple isn’t just a purveyor of gadgets; it sells an entire ecosystem of personal consumer electronics and related services. And it’s a sticky ecosystem, at that.

Buffett has called the iPhone maker Berkshire Hathaway’s “third business,” noting Apple fans’ fantastic brand loyalty as one reason for being all-in on the stock. (Apple accounts for more than 40% of the value of Berkshire’s equity portfolio.)

And as the single-best global stock of the past 30 years – having created $2.67 trillion in net wealth for shareholders – who’s going to argue with Buffett’s ardor for Apple? 

Not the Street, that’s for sure. Of the 45 analysts issuing opinions on AAPL stock surveyed by S&P Global Market Intelligence, 28 call it a Strong Buy, seven say Buy, eight have it at Hold, one says Sell and one says Strong Sell.

The fact that Apple is on pace to become the world’s first company with a market value of $3 trillion is a “watershed” moment, notes Wedbush analyst Daniel Ives (Outperform).

“The company continues to prove the doubters wrong with the renaissance of the growth story,” Ives writes.

 

“The linchpin to Apple’s valuation re-rating remains its Services business, coupled by its flagship hardware ecosystem, which is in the midst of its strongest product cycle in over a decade led by iPhone 13.”

 

The analysts adds that although supply chain issues have “curtailed some growth for Apple on this massive product cycle playing out across its entire hardware ecosystem, we believe the pent-up demand story is still being underestimated by investors.”

• Market value: $450.4 billion
• Dividend yield: 1.2%
• Analysts’ consensus recommendation: 1.54 (Buy)

With a market value of more than $450 billion and a 2022 revenue estimate of $316 billion, UnitedHealth Group (UNH, $478.23) 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 UNH’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.

S&P Global Market Intelligence’s ratings system puts UNH’s score of 1.54 right on the cusp of a Strong Buy consensus recommendation.

Of the 26 analysts issuing opinions on the stock, 17 call it a Strong Buy, five have it at Buy, three say Hold and one rates UNH at Sell.

They forecast the health insurer to generate average annual EPS growth of 15.2% over the next three to five years. Meanwhile, shares trade at just 22.1 times the Street’s 2022 EPS estimate, even after rising more than 36% so far this year.

• Market value: $262.0 billion
• Dividend yield: N/A
• Analysts’ consensus recommendation: 1.49 (Strong Buy)

Salesforce.com (CRM, $266.03) was added to the Dow in 2020 when XOM was defenestrated from the blue-chip barometer.

Being tapped for membership in the elite average made the software-as-a-service juggernaut more popular than ever with analysts.

Heck, it’s the first of our Dow Jones stocks to receive a consensus recommendation of Strong Buy.

Of the 49 analysts covering the stock tracked by S&P Global Market Intelligence, 31 call it a Strong Buy, 12 say Buy and six have it at Hold.

Salesforce.com, which provides customer relationship management software to enterprise customers, was essentially doing cloud-based services before they were cool.

Bulls say that early mover advantage gives CRM an edge when it comes to capturing accelerating corporate spending on cloud-based services and products.

“Larger and more strategic digital transformation projects are getting the green light within many enterprises,” writes Wedbush analyst Daniel Ives, who rates CRM at Outperform.

 

“This is a major tailwind for Salesforce given its stalwart positioning and expanded product footprint.”

The Street forecasts Salesforce.com to generate average annual EPS growth of 23.3% over the next three to five years.

And yet sentiment is so strong on the name that investors are willing to pay 56.8 times analysts’ 2022 EPS estimate for CRM stock.

• Market value: $463.9 billion
• Dividend yield: 0.7%
• Analysts’ consensus recommendation: 1.49 (Strong Buy)

Analysts, hedge funds, mutual fund managers and even Warren Buffett love Visa (V, $213.40).

Their investment thesis is pretty straight forward: As the world’s largest payments network, Visa stands to reap outsized rewards from the massive and secular growth in cashless transactions.

The firm’s pedigree no doubt has its appeal, as well. Visa is one of the 30 best stocks of the past 30 years.

It also doesn’t hurt that even after reducing its stake by 4% in the third quarter, Warren Buffett’s Berkshire Hathaway owns 9.6 million shares in Visa, or 0.5% of its shares outstanding.

“We are highly attracted to Visa’s powerful brand, vast global acceptance network and strong business model,” writes Oppenheimer analyst Dominick Gabriele (Outperform).

 

“The company is well positioned to benefit from the long-term secular shift from paper currency (cash/check) to plastic (electronic payments), consumer spending growth and increased globalization.” 

Of the 35 analysts issuing opinions on V polled by S&P Global Market Intelligence, 22 rate it at Strong Buy, 11 call it a Buy and two say Hold.

They forecast Visa to generate average annual EPS growth of 17.2% over the next three to five years, but optimism surrounding its prospects is so strong that shares change hands at 30.3 times the Street’s 2022 EPS estimate.

• Market value: $2.6 trillion
• Dividend yield: 0.7%
• Analysts’ consensus recommendation: 1.36 (Strong Buy)

Microsoft (MSFT, $342.54), the second-best stock of the past 30 years, is the Street’s top-rated Dow component, and has plenty of room to run even after gaining more than 55% so far in 2021, bulls say.

Among Dow Jones stocks, only Home Depot has had a better year than MSFT in terms of price performance.

Importantly, the Street is substantially more bullish on the software giant than it is the home improvement retailer going forward. It gives MSFT a consensus recommendation of Strong Buy – and with high conviction to boot.

Of the 42 analysts issuing opinions on Microsoft stock, 29 say Strong Buy, 11 say Buy and two rate shares at Hold.

They forecast the company to generate average annual EPS growth of 15.4% over the next three to five years, which is really something else considering MSFT has a market value of more than $2.6 trillion already.

What gives MSFT the edge over every other Dow stock in terms of analysts’ favour is its overwhelming success in cloud services, with products such as Azure and Office 365.

Analysts say corporations’ ongoing digital transformation to cloud services represents a total addressable market of $1 trillion – and it’s a market MSFT is especially well positioned to exploit.

“Microsoft remains our favourite large cap-cloud play as the Street further appreciates the cloud transformation story,” writes Wedbush analyst Daniel Ives (Outperform).

 

“With workforces expected to have a heavy remote focus, we believe the cloud shift is just beginning to take its next stage of growth globally. This disproportionally benefits Microsoft.”

All images: Getty Images

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