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5 Blue-Chip Stocks to Buy Despite Dow's Recent Meltdown
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U.S. stock markets witnessed an impressive bull run in the last 15 days. The Dow — popularly known as the blue-chip index — rallied 13.7% in 2023 and 5.6% in first-quarter 2024, reflecting its strongest first-quarter performance since 2021. However, in the first four trading days of the second quarter, the index ended in negative, declining 3% month to date.
Dow’s Recent Meltdown is Temporary
We believe that the recent downtrend has provided a good opportunity to buy blue-chip stocks. The Dow, which started its journey in May 1896, is always inclined toward old-economy cyclical sectors like industrials, financials and oil-energy. However, its peers, such as the S&P 500 and the Nasdaq Composite, have more representation from growth sectors like technology, communication services and consumer discretionary.
The major driver of the Wall Street rally in the last 15 months was globally booming artificial intelligence (AI), especially generative AI. Companies that have extensive applications of AI in their final products have become multi-baggers in the past 15 months.
As a result, their current overstretched valuation makes them less attractive to investors. Market participants are shifting more toward cyclical sectors. This trend is likely to gather pace in the second quarter of 2024.
Dow Likely to Gather Momentum
On Mar 21, the Dow recorded its all-time high of 39,889.05 on an intraday basis. On Mar 28, the index posted an all-time high of 39,807.37 on a closing basis. Technically, at its current level of 38,596.98, the Dow is well above its 100-day and 200-day moving averages of 37,657.58 and 35,961.95, respectively.
The 100-day moving average line is generally recognized as a short-term trendsetter in financial literature, while the 200-day moving average is considered a long-term trendsetter. Historically, it has been noticed in the technical analysis space that whenever the 100-day moving average line surges ahead of the 200-day moving average line, a long-term uptrend for the asset (in this case, the Dow Index) becomes a strong possibility.
Recent Restructuring of Dow
On Feb 26, the restructuring of the 30-stock index resulted in the exit of medical-retailer Walgreens Boots Alliance Inc. (WBA) and the entry of the e-commerce super giant Amazon.com Inc. (AMZN).
The restructuring was initiated after the retail giant Walmart Inc. (WMT) decided on a 3-to-1 stock split. Unlike the other two major stock indexes — the S&P 500 and the Nasdaq Composite — the Dow is a price-weighted index and not a market-capital-weighted index.
The inclusion of Amazon is seen as a strategic move to increase the blue-chip index’s exposure to new-economy stocks. Broadly, Amazon is categorized as a consumer discretionary company. However, its massive adoption of high-end technologies compelled a large section of financial analysts to categorize it as a technology bigwig.
Amazon’s entry will significantly increase the exposure of the blue-chip index in the e-commerce, consumer retail and technology space. Amazon’s weight in the Dow will rank 17 out of the 30 stocks. Walmart’s weight will drop to 26 from 17. Meanwhile, UnitedHealth Group Inc. (UNH) will remain the most heavily weighted stock on the Dow.
Our Top Picks
We have narrowed our search to five Dow stocks that have strong earnings growth potential for 2024. These stocks have seen positive earnings estimate revisions in the last 30 days. Finally, each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
American Express Co. (AXP - Free Report) has benefited from growth initiatives, like launching new products, reaching new agreements and forging alliances. Consumer spending on T&E, which carries higher margins for AXP, is advancing well. AXP’s balance sheet looks strong with ample cash. Solid cash-generation abilities enable the pursuit of business investments and prudent deployment of capital via buybacks and dividends.
American Express has an expected revenue and earnings growth rate of 9.4% and 14.5%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 30 days.
International Business Machines Corp. (IBM - Free Report) is likely to benefit from the rising demand of its hybrid cloud and AI solutions. Increased watsonx adoption by clients is a tailwind.
IBM’s collaboration with SAP to tap generative AI technology within the retail industry will likely generate incremental revenues. The strong free cash flow generation of IBM provides the financial flexibility required for strategic investments in the evolving business environment.
International Business Machines has an expected revenue and earnings growth rate of 3.1% and 4.7%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 60 days.
The Travelers Companies Inc. (TRV - Free Report) boasts a strong market presence in auto, homeowners’ insurance and commercial U.S. property-casualty insurance with solid inorganic growth. A high retention rate, a rise in new business and positive renewal premium change bode well.
TRV’s commercial businesses should perform well owing to market stability. TRV remains optimistic about the personal line of business, given growth at profitable agencies like auto and homeowners businesses. Strong and reliable returns from the growing fixed-income portfolio should drive net investment income. Sufficient capital boosts shareholder value. TRV aims for a mid-teens core return on equity over time.
The Travelers Companies has an expected revenue and earnings growth rate of 11.8% and 34.8%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last seven days.
The Procter & Gamble Co. (PG - Free Report) has been gaining from robust pricing and a favorable mix, along with strength across segments. PG has been focused on productivity and cost-saving plans to boost margins. PG’s products play a key role in meeting the daily health, hygiene and cleaning needs of consumers around the world. PG has provided an optimistic fiscal 2024 view. We estimate all-in sales to increase 3.4% year over year in fiscal 2024.
The Procter & Gamble has an expected revenue and earnings growth rate of 3.5% and 9.3%, respectively, for the current year (ending June 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.5% over the last 60 days.
Caterpillar Inc. (CAT - Free Report) known for its iconic yellow machines, is the largest global construction and mining equipment manufacturer. Given that it serves a gamut of sectors — infrastructure, construction, mining, oil & gas, and transportation, CAT is considered a bellwether of the global economy.
CAT has been benefiting from its cost-saving actions, strong end-market demand and pricing actions that offset the impact of supply-chain snarls and cost pressures.
Caterpillar has an expected revenue and earnings growth rate of 0.8% and 0.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last seven days.
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5 Blue-Chip Stocks to Buy Despite Dow's Recent Meltdown
U.S. stock markets witnessed an impressive bull run in the last 15 days. The Dow — popularly known as the blue-chip index — rallied 13.7% in 2023 and 5.6% in first-quarter 2024, reflecting its strongest first-quarter performance since 2021. However, in the first four trading days of the second quarter, the index ended in negative, declining 3% month to date.
Dow’s Recent Meltdown is Temporary
We believe that the recent downtrend has provided a good opportunity to buy blue-chip stocks. The Dow, which started its journey in May 1896, is always inclined toward old-economy cyclical sectors like industrials, financials and oil-energy. However, its peers, such as the S&P 500 and the Nasdaq Composite, have more representation from growth sectors like technology, communication services and consumer discretionary.
The major driver of the Wall Street rally in the last 15 months was globally booming artificial intelligence (AI), especially generative AI. Companies that have extensive applications of AI in their final products have become multi-baggers in the past 15 months.
As a result, their current overstretched valuation makes them less attractive to investors. Market participants are shifting more toward cyclical sectors. This trend is likely to gather pace in the second quarter of 2024.
Dow Likely to Gather Momentum
On Mar 21, the Dow recorded its all-time high of 39,889.05 on an intraday basis. On Mar 28, the index posted an all-time high of 39,807.37 on a closing basis. Technically, at its current level of 38,596.98, the Dow is well above its 100-day and 200-day moving averages of 37,657.58 and 35,961.95, respectively.
The 100-day moving average line is generally recognized as a short-term trendsetter in financial literature, while the 200-day moving average is considered a long-term trendsetter. Historically, it has been noticed in the technical analysis space that whenever the 100-day moving average line surges ahead of the 200-day moving average line, a long-term uptrend for the asset (in this case, the Dow Index) becomes a strong possibility.
Recent Restructuring of Dow
On Feb 26, the restructuring of the 30-stock index resulted in the exit of medical-retailer Walgreens Boots Alliance Inc. (WBA) and the entry of the e-commerce super giant Amazon.com Inc. (AMZN).
The restructuring was initiated after the retail giant Walmart Inc. (WMT) decided on a 3-to-1 stock split. Unlike the other two major stock indexes — the S&P 500 and the Nasdaq Composite — the Dow is a price-weighted index and not a market-capital-weighted index.
The inclusion of Amazon is seen as a strategic move to increase the blue-chip index’s exposure to new-economy stocks. Broadly, Amazon is categorized as a consumer discretionary company. However, its massive adoption of high-end technologies compelled a large section of financial analysts to categorize it as a technology bigwig.
Amazon’s entry will significantly increase the exposure of the blue-chip index in the e-commerce, consumer retail and technology space. Amazon’s weight in the Dow will rank 17 out of the 30 stocks. Walmart’s weight will drop to 26 from 17. Meanwhile, UnitedHealth Group Inc. (UNH) will remain the most heavily weighted stock on the Dow.
Our Top Picks
We have narrowed our search to five Dow stocks that have strong earnings growth potential for 2024. These stocks have seen positive earnings estimate revisions in the last 30 days. Finally, each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
American Express Co. (AXP - Free Report) has benefited from growth initiatives, like launching new products, reaching new agreements and forging alliances. Consumer spending on T&E, which carries higher margins for AXP, is advancing well. AXP’s balance sheet looks strong with ample cash. Solid cash-generation abilities enable the pursuit of business investments and prudent deployment of capital via buybacks and dividends.
American Express has an expected revenue and earnings growth rate of 9.4% and 14.5%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 30 days.
International Business Machines Corp. (IBM - Free Report) is likely to benefit from the rising demand of its hybrid cloud and AI solutions. Increased watsonx adoption by clients is a tailwind.
IBM’s collaboration with SAP to tap generative AI technology within the retail industry will likely generate incremental revenues. The strong free cash flow generation of IBM provides the financial flexibility required for strategic investments in the evolving business environment.
International Business Machines has an expected revenue and earnings growth rate of 3.1% and 4.7%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 60 days.
The Travelers Companies Inc. (TRV - Free Report) boasts a strong market presence in auto, homeowners’ insurance and commercial U.S. property-casualty insurance with solid inorganic growth. A high retention rate, a rise in new business and positive renewal premium change bode well.
TRV’s commercial businesses should perform well owing to market stability. TRV remains optimistic about the personal line of business, given growth at profitable agencies like auto and homeowners businesses. Strong and reliable returns from the growing fixed-income portfolio should drive net investment income. Sufficient capital boosts shareholder value. TRV aims for a mid-teens core return on equity over time.
The Travelers Companies has an expected revenue and earnings growth rate of 11.8% and 34.8%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last seven days.
The Procter & Gamble Co. (PG - Free Report) has been gaining from robust pricing and a favorable mix, along with strength across segments. PG has been focused on productivity and cost-saving plans to boost margins. PG’s products play a key role in meeting the daily health, hygiene and cleaning needs of consumers around the world. PG has provided an optimistic fiscal 2024 view. We estimate all-in sales to increase 3.4% year over year in fiscal 2024.
The Procter & Gamble has an expected revenue and earnings growth rate of 3.5% and 9.3%, respectively, for the current year (ending June 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.5% over the last 60 days.
Caterpillar Inc. (CAT - Free Report) known for its iconic yellow machines, is the largest global construction and mining equipment manufacturer. Given that it serves a gamut of sectors — infrastructure, construction, mining, oil & gas, and transportation, CAT is considered a bellwether of the global economy.
CAT has been benefiting from its cost-saving actions, strong end-market demand and pricing actions that offset the impact of supply-chain snarls and cost pressures.
Caterpillar has an expected revenue and earnings growth rate of 0.8% and 0.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last seven days.