Yesterday, the Dow Jones Industrial Average had its worst day so far this year. The index containing 30 American blue-chip stocks, posted its largest one-day percentage loss since December, with it falling 767 points or 3%.
The August 5 drop comes after China answered Trump's tariff threats with another escalation of the trade war. China allowed the Yuan to fall to its lowest level in over a decade and told state-owned companies to suspend imports of U.S. agricultural products. In response to this move, the U.S. then labeled China as a "Currency Manipulator". This decline follows the Dow's previous 1% drop on July 31, which occurred after the Federal Reserve sent mixed messages regarding whether or not it would cut interest rates further.
All of this has led to a great degree of economic uncertainty. However, some analysts believe that a few Dow stocks look poised to not only withstand the current climate but also to outperform.
Here are 3 top rated Dow Jones stocks that analysts are saying make compelling investments even in an uncertain economic climate.
Visa, Inc. (V)
Despite a 2% drop in the last three days, the payment processing giant is looking strong.
Visa’s long-term growth prospects appear unchanged as the number of consumers relying on non-cash payments to make purchases is only growing. Global non-cash payments volume is expected to increase by at least 10%.
Not to mention the company has continued to expand and diversify its product pipeline. On July 17, Visa announced that it will acquire payment gateway software company, Payworks. This technology will allow V to create a white-labeled omnichannel payment management platform for in-store, in-app and online purchases. Earlier in June, the company also launched new installment capabilities for cardholders and released its B2B payment network that allows financial institutions to process high-value corporate cross-border payments much more quickly.
Five-star analyst, Josh Beck, said, “Visa's momentum in the core business is coupled with recent M&A deals and organic momentum as evidence by a triple-digit transaction growth in Visa Direct suggests Visa has a long growth path ahead and investors should be buyers of the stock.” On July 24, the KeyBanc analyst reiterated his Buy rating while raising his price target from $190 to $195, suggesting 10% upside. He has an 82% success rate and gets an average return of 26% per rating.
Another top analyst, Brett Huff, sees more upside for Visa based on its robust pipeline of renewals and new deals as well as its better-than-expected foreign exchange impact on full-year revenue and EPS. On July 29, he reiterated his Buy rating and raised the price target from $185 to $190, indicating 7% upside potential. The Stephens analyst boasts an impressive 90% success rate and average return rate of 33% per rating.
The Street remains bullish on Visa. The stock has a ‘Strong Buy’ analyst consensus and a $202 average price target, suggesting 14% upside potential.
McDonald’s Corporation (MCD)
The second Dow stock on our list gained 1% in the three days following the Fed’s announcement. With the fast-food chain up 21% year-to-date, MCD looks poised to serve investors with continued growth.
Steve Chiavarone of financial services company, Federated Investors, argues that fast-food companies stand to benefit from the current economic backdrop. “Low unemployment, rising wages and low gas prices mean more money in consumers’ pockets, which means the consumer is going to show up and dine out with frequency,” he said.
MCD has also shifted focus towards expanding its digital initiatives in an attempt to attract younger customers. Management attributes the second quarter same-store sales growth to tech-focused store renovations. On July 26, MCD reported U.S. same-store growth was 5.7%, beating the 4.5% consensus estimate.
The company is expanding upon these efforts, with it planning to invest $1 billion dollars during fiscal 2019 to modernize its American locations. By 2020, all U.S. restaurants will have self-service ordering kiosks.
Also inspiring confidence, McDonald’s announced in March that it would acquire AI software company, Dynamic Yield, to help it gain actionable insights from the data it collects.
“We like McDonald's heightened focus on digital initiatives, which should yield benefits near and long-term, and believe ongoing momentum should continue to support a premium to its historical valuation,” Credit Suisse analyst, Lauren Silberman, said on July 30. She reiterated her Buy rating and raised her price target from $230 to $236, suggesting 10% upside potential. The analyst boasts a 75% success rate.
Top financial blogger, Luke Lango, adds, “The premium valuation underlying MCD stock is warranted by strengthening fundamentals and a favorable market backdrop, as the company is firing on all cylinders as rates plunge to new lows. So long as the company continues to do so — and so long as rates remain low — MCD stock should stay on a healthy uptrend.”
The Street is cautiously optimistic about MCD. It has a ‘Moderate Buy’ analyst consensus and a $228 average price target, suggesting 6% upside.
Chevron Corporation (CVX)
While shares have declined 3% in the three days after the rate cut, investors shouldn’t abandon Chevron just yet.
On August 2, Chevron reported that its second quarter profits jumped 26% as a result of higher oil and gas production. Daily oil and gas production grew 9% from the year-ago quarter to a record breaking 3.08 million barrels. U.S. shale production also increased by 21% in the quarter. Its results were improved by the one-time $1 billion payment it received after Occidental Petroleum ruined its deal to buy Anadarko Petroleum.
Despite not closing the Anadarko Petroleum deal, the company remains committed to expanding its portfolio, specifically its liquified natural gas (LNG) prospects.
“We’re always working the portfolio, and LNG is one of the asset classes that we're interested in, and we will pursue opportunities in that space,” CFO Pierre Breber said.
Morgan Stanley analyst, Devin McDermott, said, “The current market obsession with oil-sector (free cash flow), dividends and buybacks plays well to (Chevron’s) strengths.” On July 12, he reiterated his Buy rating and lowered his price target from $146 to $144. Even with the price target drop, the analyst still believes share prices could rise by as much as 19% over the next twelve months.
CVX has a ‘Strong Buy’ analyst consensus and a $140 average price target, suggesting 16% upside.