The Dow --- one of the equity markets’ most closely watched indexes –-- has witnessed several ups and downs in the past one month. Despite severe market volatility, the blue-chip index of Wall Street has provided double-digit returns to investors so far this year.
A closer look at the Dow will tell us some interesting stories. Several components within the index have gained in the past one month despite stock market rout. Some of these stocks have strong upside left.
Dow Plunges in Past Month
In May, the Dow tumbled 6.7%. Sudden break down of the U.S.-China trade negotiations and Trump’s threat to impose tariff on Mexico the main culprits of the Wall Street rout. In the week ended May 31, the index declined 3%, marking its sixth straight weekly loss, the longest weekly losing streak since June 2011.
However, the situation improved from the beginning of June. Fed Chair Jerome Powell’s hint at a possible rate cut and some positive development on the U.S.-Mexico trade war front resulted in a stock market recovery. Consequently, the Dow finished in the positive territory in the last four trading sessions with a rally of 3.6%. This is also the index’s largest winning streak since Mar 18.
Moreover, 24 components of the total portfolio of 30 stocks on the Dow 30 index have provided positive returns so far this year. A strong bunch of 17 stocks have provided positive double-digit returns.
Two Near-Term Catalysts for Dow
First, on Jun 4, at the “Conference on Monetary Strategy, Tools and Communications Practices,” in Chicago, Fed chair Jerome Powell said that the central bank is watching current economic developments and will “act as appropriate to sustain the expansion.”
According to CME FedWatch tool, more than 90% responders were hoping for a rate cut in September. Furthermore, 60% probability for three rate cuts in 2019. Muted inflation and global economic slowdown may compel Fed to reduce interest rate, much to the delight of President Trump. The Trump administration is constantly blaming the central bank for its aggressive monetary stance as the major hindrance of economic growth.
Second, trade negotiation between the United States and Mexico resumed on Jun 6 after it failed the previous day. President Donald Trump said that he thinks Mexico wants to seal a deal to prevent a new fresh trade conflict.
According to a Bloomberg report, Senate Republicans have decided to oppose President Trump’s decision to impose 5% tariff on all imports from Mexico. These duties will come into to force from Jun 10 unless Mexico stops the flow of illegal immigrants to the United Sates.
Our Top Picks
We have narrowed down our search to five Dow Stocks that have gained in the past month and still hold momentum. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Microsoft Corp. MSFT is one of the largest broad-based technology providers in the world. Although software is the most important revenue source, its offerings also include hardware and online services.
Microsoft has a dominant position in the desktop PC market, with its operating systems being used in the majority of PCs worldwide. The company has doubled down on the cloud computing opportunity. It also offers a hybrid cloud solution that enables the integration of existing IT infrastructure with the public cloud. Additionally, Microsoft is one of the three largest providers of gaming hardware.
The company has expected earnings growth of 18% for the current year and generated positive earnings surprises in all of the last four reported quarters, with an average beat of 9.8%. The Zacks Consensus Estimate for the current year has improved by 3.9% over the past 60 days. The stock has gained 1.9% in the past month.
Cisco Systems Inc. CSCO is an IP-based networking company, also offering other products and services to service providers, companies, commercial users and individuals. The company is the largest player in the networking space.
Cisco has a strong presence in the router and switch market. It has also retained a leadership position in WLAN and Ethernet switching. The data center market is very strong where Cisco remains as the market leader. Cisco’s focus on wireless carriers has increased of late, as evident by acquisitions such as Intucell, BroadHop, Cognitive Security, Cariden, ClearAccess and Ubiquisis.
The company has expected earnings growth of 18.5% for the current year and generated positive earnings surprises in all of the last four reported quarters, with an average beat of 2.1%. The Zacks Consensus Estimate for the current year has improved by 0.7% over the past 60 days. The stock has gained 3.1% in the past month.
Merck & Co. Inc. MRK is a global research-driven pharmaceutical products company. The company offers therapeutic and preventive agents to treat cardiovascular, type 2 diabetes, chronic hepatitis C virus, HIV-1 infection, intra-abdominal, fungal infection, insomnia and inflammatory diseases.
Merck has many pipeline candidates in advanced stages of development targeting multiple disease areas such as oncology, cardiovascular diseases, diabetes, infectious diseases, neurosciences, respiratory and immunology diseases, and vaccines. The company has prioritized its pipeline so that the candidates with the highest potential get the required support.
The company has expected earnings growth of 9% for the current year and generated positive earnings surprises in all of the last four reported quarters, with an average beat of 5.7%. The Zacks Consensus Estimate for the current year has improved by 1.7% over the past 60 days. The stock has gained 4.2% in the past month.
Chevron Corp. CVX is one of the largest publicly traded oil and gas companies in the world, based on proved reserves. It is engaged in oil and gas exploration and production, refining and marketing of petroleum products, manufacturing of chemicals, and other energy-related businesses.
Chevron's key assets are focused on the United States, Australia, most of South America, and eastern and central Asia. The company has extensive upstream operations in all major hydrocarbon-producing regions of the world. The downstream segment comprises its worldwide portfolio of refining, marketing, distribution and chemical assets.
The company has expected earnings growth of 22.5% for the next year and generated positive earnings surprises in three of the last four reported quarters, with an average beat of 2.3%. The Zacks Consensus Estimates for the current year and next year have improved by 19.2% and 23.6%, respectively, over the past 60 days. The stock has gained 2.7% in the past month.
Walmart Inc. WMT operates retail stores, restaurants, discount stores, supermarkets, supercenters, hypermarkets, warehouse clubs, apparel stores, Sam’s Clubs, and NeighborhoodMarkets, as well as the websites – walmart.com and samsclub.com.
Walmart has been gaining from its sturdy comparable store sales (comps) record, which in turn is driven by its constant expansion efforts and splendid e-commerce performance. The company is trying every means to evolve with the changing consumer environment to compete with brick-and-mortar rivals and e-Commerce behemoths.
The company has expected earnings growth of 4.7% for the next year and generated positive earnings surprises in each of the last four reported quarters, with an average beat of 7.3%. The Zacks Consensus Estimates for the current year and next year have improved by 1.5% and 1%, respectively, over the past 60 days. The stock has gained 4.8% in the past month.
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