As measured by the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA), the venerable Dow Jones Industrial Average is up 11.7% year-to-date. Twenty-five of the 30 Dow Jones stocks are higher on a year-to-date basis.
Interestingly, four of the five Dow stocks that are in the red to start 2019 hail from the defensive consumer staples and healthcare sectors. The Dow is a price-weighted index, meaning the stock with the highest price tag, in this case that is Boeing (NYSE:BA), is the index’s largest component.
Speaking of Boeing, the aerospace and defense giant, represents about 30% of the Dow’s 2019 gains. Shares of Boeing account for 11.3% of DIA’s weight, or more than 500 basis points above the weight assigned to the fund’s second-largest holding.
Indeed, Boeing has been hot, but there are other Dow names to consider. Here some ideas for investors looking to make moves among Dow Jones stocks.
Thirteen Dow stocks were up 10% or more through March 5 and Microsoft (NASDAQ:MSFT) narrowly missed out on that club with a 9.97% gain. The stock resides around $112, below the average analyst price target of $125.45. With a market value of just over $858 billion, Microsoft is one of the largest companies in the world and few companies of comparable heft can match this Dow stock’s growth trajectory.
“We see wide-moat Microsoft as an attractive investment opportunity throughout 2019, as there are very few companies the size of Microsoft that can offer 12% revenue growth and 15% earnings growth in each of the next several years,” said Morningstar in a recent note. “With shares hovering around $111, we see more than 15% upside to our $130 fair value estimate.”
Microsoft’s cloud business, Azure, is a major growth driver for the company.
“We estimate Azure is approximately a $7 billion business and it still grew by a staggering 76% year over year in the December quarter,” according to Morningstar.
UnitedHealth Group (UNH)
As has been noted, healthcare services providers, of which UnitedHealth Group (NYSE:UNH) is the largest, have been drubbed lately. A major reason for those declines is speculation that the 2020 Democratic presidential nominee will favor Medicare For All. This Dow Jones stock is down 4% over the past week and is one of the five Dow Jones stocks in the red this year, underscoring the market’s negative sentiment toward Medicare For All.
Regardless of an investors’ political leanings, Medicare For All is a big deal for UnitedHealth is the second-largest Dow stock. The company also employs 300,000 people, meaning there is plenty of incentive for politicians to not materially alter the current healthcare system in the U.S.
With a forward price-to-earnings ratio of 14.4x, UnitedHealth is nearing an area where the shares can be considered inexpensive, but the potential for near-term political headwinds remains.
The Travelers Companies (TRV)
The Travelers Companies (NYSE:TRV) often goes overlooked, but it is one of the 13 Dow Jones stocks that is up at least 10% this year.
The company posted fourth-quarter net income of $621 million, or $2.32 per diluted share, up from $551 million, or $1.98 per diluted share, a year earlier. Travelers also recently announced it will be the insurance partners for rideshare firm Lyft. The company is expected to earn $2.79 per share in the first quarter.
A forward P/E ratio of 12.2x is slightly above the five-year average for Travelers, but this stock is not richly valued and reflects some of the value proposition available in the financial services sector.
Shares of Visa (NYSE:V) are rebounding this year after sliding in the fourth quarter. An important element to the long-term thesis for this Dow Jones stock is how well a company the size of Visa can ward of competitive challenges from more nimble fintech rivals.
Bernstein analyst Harshita Rawat recently waxed bullish on Visa, reiterating an “outperform” rating while boosting the price target on the Dow stock to $165 from $152. Of course, Visa is positioned to benefit from the increasing move to non-cash forms of payment, which bolsters the long-term case for this Dow stock.
“Visa dominates the global market for electronic payments, accounting for about half of all credit card transactions and an even higher percentage of debit card transactions, according to Morningstar.
As Goldman Sachs recently noted, Visa is one of the stocks most beloved by mutual fund and hedge fund managers. Visa is the eighth-largest Dow Jones stock.
Exxon Mobil (XOM)
The largest U.S. oil company is also up over 15% more this year, reminding investors that even integrated oil companies can be intimately correlated to oil prices. Exxon Mobil (NYSE:XOM) has operations all over the world, onshore and offshore, but the company is looking to bolster its production in the lucrative Permian Basin. The same is true of fellow Dow stock and Exxon rival Chevron (NYSE:CVX).
“Within hours of each other on Tuesday, the two largest energy companies in America announced they want to pump almost 2 million barrels a day combined in the Permian Basin of west Texas and New Mexico, a higher amount than most OPEC nations. Chevron plans to reach 900,000 barrels a day by 2023, while Exxon aims for 1 million by 2024,” reports Bloomberg.
Last year, Exxon added 4.5 billion barrels of oil and oil equivalent to its reserves. That was good for the company’s best reserve replacement ratio in a decade. Shares of Exxon yield 4.2%, or more than double the dividend yield on the S&P 500.
With the healthcare sector going from first in 2018 to worst to start this year, Pfizer (NYSE:PFE) is one of the Dow’s laggards, but the pharmaceuticals giant has the ability to shed that status. Citigroup recently resumed coverage of Pfizer with a tepid “neutral” rating and a $41 price target, but some traders see Pfizer’s ability to stay above its 200-day moving average as a sign the Dow Jones stock could be primed for some upside.
As is the case with UnitedHealth, there is some political risk with Pfizer because politicians are also taking aim at high drug prices. Pfizer’s drug profile, led by non-opioid pain killer Tanezumab, is robust.
The company has every incentive to keep it that way because looking out over the longer term, Pfizer faces a massive patent cliff starting in 2026.
Another healthcare laggard among Dow Jones stocks is Merck (NYSE:MRK). While Merck is up less than 7% this year, well behind, the Dow and S&P 500, there are some catalysts that could drive this Dow stock higher as 2019 moves along. UBS analyst Navin Jacob is bullish on Merck.
“For Merck, Jacob’s bull case rests on his optimism for two key products: cancer blockbuster Keytruda and Gardasil, a vaccine for human papillomavirus, or HPV,” according to Barron’s. “He believes that the products’ potential hasn’t been fully priced into the stock or consensus estimates. His estimates for sales of Keytruda are higher than the Street’s.”
Some upside is possible with Merck at current levels, but a dip to the mid-$70s could offer investors a more compelling area to get involved with this Dow stock. Shares of Merck yield 2.7%.
As of this writing, Todd Shriber did not own any of the aforementioned securities.
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