It’s a bear market, and virtually all stocks are trending downward. But some are holding up better than others, and the Dow Jones Industrial Index stocks are one of the stronger groups. Through Sept. 26, the Dow Jones was down 20% for the year. That’s not great, of course. But it’s well ahead of the S&P 500 which is down 24% and the Nasdaq, which has sunk 31% over the same period.
The Dow skews much more than other indexes towards so-called “old economy” stocks that are in more staid industries. That’s not always a plus, but it has served the index well in 2022 as the Dow stocks have managed to avoid the same extent of selling that we’ve seen in more growth-focused indexes. Here are seven Dow stocks to buy that will enable investors to cash in on this change in market sentiment.
Johnson & Johnson
Johnson & Johnson (JNJ)
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Johnson & Johnson (NYSE:JNJ) is the perfect example of the hidden bull market in many Dow stocks. JNJ stock is down just 4% year-to-date, and it is up slightly over the past 12 months. While those aren’t breathtaking returns, they’re very welcome in a rocky market such as this one.
Johnson & Johnson has a history of outperforming in bear markets precisely because it is such a stable and defensive company. It has three main lines of business: Pharmaceutical drugs, medical devices, and consumer health and wellness products.
Because J&J has diversified revenue streams, it tends to do well in any economic climate. During the pandemic, for example, the demand for medical devices slowed down as hospitals delayed elective surgeries.
On the other hand, consumers bought more personal care and wellness products during that period, lifting JNJ’s sales in those areas. JNJ stock is trading for just 17 times its forward earnings and has one of the strongest balance sheets of any publicly traded companies. As a result, it’s a perfect “safe haven” holding that can thrive in uncertain economic times.
Goldman Sachs (GS)
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Goldman Sachs (NYSE:GS) is one of America’s leading investment banks, and it has built an increasingly large consumer finance operation in recent years as well. The firm is known for its shrewd trading; Goldman has a reputation for never losing money even when the rest of Wall Street is suffering. In 2008, for example, Goldman Sachs made money betting against the mortgage market during the financial meltdown.
Goldman had an unusually profitable year in 2021 thanks to its rising asset management income and as its profits from investment banking deals climbed as the number of IPOs and acquisitions jumped.
As you might expect, the firm’s investment banking unit has cooled off in 2022. That’s because, with the market in a slump, fewer companies need investment banking services.
However, investors shouldn’t get overly bothered about the short-term fluctuations of Goldman’s profits. GS is a best-in-industry operator whose stock is now down sharply, with its shares now going for just one time its tangible book value.
Historically, that valuation has been a fantastic entry point for high-quality banks in general and Goldman in particular. Goldman typically traded for more than two times its tangible book prior to the 2008 financial crisis and was at 1.5 times its tangible book in 2021.
Also, Goldman has a tendency to increase its tangible book value at least 10% per year. Consequently, the shares could climb 50% or more once the bear market lets up.
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It’s the worst of times for the telecom and cable operators. Most companies across the sector keep hitting new 52-week lows with regularity, and Verizon (NYSE:VZ) has been no exception. VZ stock is now down more than 25% in 2022. That’s simply a shocking drawdown for VZ, which has a defensive, highly profitable business.
It’s true that the telcom sector has slowed. People signed up for new service and upgraded their plans during the work- and study-from-home era in 2020 and 2021. And with in-person entertainment venues closed down, people were willing to spend more on digital services. These trends have reversed in 2022, hammering the profits of telecom and cable operators.
But at some point, enough is enough. At its current price, VZ stock is down to 7.4 times its forward earnings. And analysts, on average, expect the company’s earnings to be flat to up slightly in 2023 and 2024, so the firm’s bottom line is not expected to seriously weaken. And the shares also offer a tremendous dividend yield of 6.6%.
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Visa (NYSE:V) is one of the world’s two major credit card networks. Like its chief rival, Mastercard (NYSE:MA), Visa doesn’t take any credit risk. When a customer buys items with credit, all the risk is assumed by the bank or credit union that issued the card. Visa, as a result, earns its money from transaction fees rather than interest.
With the economy seemingly going into a recession, that is vital to understand Investors are worried about potential defaults by credit-card users. But defaults create problems for banks, not Visa.
Perhaps consumer spending will slow given the economic problems. However, so far, Visa has been reporting good results in 2022 as the economic reopening combined with high inflation has caused overall transaction totals to surge.
Despite Visa’s strong financial results, the shares are lingering near its 52-week lows at the moment. That has put V stock at less than 25 times its forward earnings for the time being.
That is a pretty amazing bargain, given that Visa typically has traded for between 30 and 40 times its earnings in recent years. Visa has grown its earnings by an average of 16% per year compounded over the past decade; investors should be richly rewarded for buying the shares of such a consistent growth machine at just 24 times its earnings.
Dow Inc. (DOW)
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Dow (NYSE:DOW) is a leading chemical company that makes products for a wide variety of applications, such as agriculture, cosmetics, beverages, health care, packaging, and many more. The obvious appeal of Dow stock is its valuation: Dow’s shares are selling for less than six times its forward earnings and offers a 6.4% dividend yield. But isn’t the upcoming economic recession going to crush chemicals companies? That’s not necessarily the case for Dow.
Dow has a unique advantage that will allow it to enjoy a hidden bull market despite the current economic turmoil. That’s because it is an American company whose operations are primarily located in the American south, near America’s major natural gas fields and refining centers.
This gives Dow plants access to affordable natural gas and refined products needed to make chemicals. By contrast, in Europe, electricity prices have soared to record highs and some products, like natural gas, are in short supply at any price.
As a result, Dow has a tremendous advantage when it’s competing against its rivals in Germany, France, and other European markets. While the demand for its products may slow given the economic challenges, Dow should be able to gain market share thanks to its access to cheap electricity and raw materials.
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Boeing (NYSE:BA) is one of the world’s two primary commercial aircraft manufacturers. It took a tremendous hit to its reputation and business due to the safety issues around its Boeing 737 MAX. The pandemic did Boeing no favors either, as airlines delayed buying new planes in the wake of the uncertainty about the future demand for flights.
The airline sector is turning the corner, now, however. Airlines’ ticket sales have been far stronger in 2022 than 2021 in many countries.
Also, after a huge surge earlier this year, jet fuel prices are rapidly coming back down, boosting the airlines’ bottom lines. That’s not all. Don’t forget that Boeing has a significant military and defense business as well.
As you’d expect, defense spending is on the rise in the wake of Russia’s invasion of Ukraine. That should help Boeing’s financial results stay resilient even if its commercial aerospace business continues to lag.
Morningstar’s Joshua Aguilar agrees that BA stock is a tremendous value at today’s prices. He puts fair value for Boeing at $235 per share, whereas the stock is trading at just $131 today. The disparity indicates that Boeing’s shares are more than 40% undervalued now.
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3M (NYSE:MMM) is one of America’s largest manufacturing companies. It makes a vast number of products ranging from Post-It notes to protective helmets, dental equipment, and just about everything in between.
MMM stock has been under fire for two reasons. One, the slowing economy could hurt the demand for a wide variety of industrial goods. Secondly, 3M is on the hook for a large amount of liabilities related to defective earplugs that it supplied to the military. Usually markets overreact to lawsuits; 3M is likely to pay a few billion dollars or so, but the decline in its market capitalization in recent months has been far higher than that.
Thanks to the tremendous sell-off of MMM stock, the shares are now trading for less than 11 times the company’s earnings. The shares also offer a 5.3% dividend yield, and 3M has hiked its dividend every year for decades in a row.
Like Dow, 3M also benefits from having a broad footprint in America where it obtains cheaper electricity compared to its European rivals.
On the date of publication, Ian Bezek held long positions in VZ, MMM, DOW, VZ, GS, JNJ stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.
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