Representing some of the biggest names across various industries, the companies listed in the Dow Jones usually facilitate a great starting point for newbie investors. Featuring established track records, Dow stocks typically deliver the goods. And if they don’t, they risk getting the boot. However, the circumstances of the post-pandemic new normal opens doors for contrarian investors.
Since the start of the year, the venerable index has fallen 11%, which to be fair is much better than other indices. Still, that’s a double-digit loss, which means several Dow stocks trade in the red. Though some might deserve the crimson stain, others may symbolize potential upside opportunities. This article will focus on the latter.
| DIS | Walt Disney | $107.25 |
| CSCO | Cisco | $45.31 |
| INTC | Intel | $28.13 |
| WBA | Walgreens Boots Alliance | $36.38 |
| PG | Procter & Gamble | $135.24 |
| HD | Home Depot | $296.11 |
| GS | Goldman Sachs | $347.38 |
Disney (DIS)
One of the powerhouses of the entertainment industry, Disney (NYSE:DIS) usually finds itself dictating terms. However, this year flipped the narrative on the Magic Kingdom. On a year-to-date basis, DIS stock fell 32%, reflecting steep concerns regarding its underlying viability and relevance. At the moment, Disney features a market capitalization of $194 billion.
Despite the volatility, Disney may represent one of the Dow stocks to buy based on possibly emerging demand. Back during the heart of the coronavirus pandemic, Disney enjoyed a captive audience. However, revenge travel – or the demand for real experiences following two years of cabin fever – undid much good.
Nevertheless, the apparent bounce back of content streaming services implies that entertainment is pivoting back to the living room. If so, this augurs well for DIS as one of the Dow stocks to buy. Additionally, Disney enjoys a strong financial track record. For instance, the company has nine years of consecutive profitability in the trailing decade.
Cisco (CSCO)
Headquartered in San Jose, Cisco (NASDAQ:CSCO) specializes in digital communications technology. Specifically, it develops, manufactures and sells networking hardware, software, telecommunications equipment and other high-technology services and products, per its corporate profile. Presently, Cisco features a market cap of $186 billion. Since the beginning of the year, CSCO lost 29% of equity value.
Although it’s not the most encouraging look, CSCO makes a case for Dow stocks to buy. Fundamentally, boring companies like Cisco offer safe-ish, risk-off exposure. That might pay dividends (metaphorically speaking) during these uncertain times.
Speaking of dividends, the company also pays them literally, with a forward yield of 3.4%. Also note the payout ratio of 43.14%, which is arguably reasonable given the troubled macroeconomic circumstances.
Financially, Cisco brings two weapons to the table. First, it features a stable balance sheet, with a debt-to-EBITDA ratio of 0.57 times (under the industry median of 1.83.) More impressively, it features excellent profitability. For instance, its net margin of 23% ranks better than nearly 95% of its peers. Thus, CSCO is one of the Dow stocks you can’t afford to ignore.
Intel (INTC)
Although the circumstances of 2022 have been awful for myriad industries, few have felt the pain like semiconductors. Intel (NASDAQ:INTC) provides more than enough material. With global supply chain disruptions disproportionately impacting the chipmakers, firms like Intel endured a new normal within the new normal. Unfortunately, the dour environment hurt INTC, sending shares down almost 47% YTD.
Though an ugly loss, contrarians may want to target Intel as one of the Dow stocks to buy. Fundamentally, the innovation space usually bounces back from hardships. Plus, Intel represents too important of an entity to simply waste away. Specifically, its investments and leadership in areas such as data centers may help lift INTC above the muck.
If narratives aren’t your thing, then hard data provides a compelling case for the tech firm. According to Gurufocus, INTC rates as a “significantly undervalued” investment. Currently, INTC is priced at less than 9 times trailing-12-month, or TTM, earnings. In contrast, the industry median is 15.3 times.
Walgreens Boots Alliance (WBA)
An American-British-Swiss holding company, Walgreens Boots Alliance (NASDAQ:WBA) owns the retail pharmacy chains Walgreens and Boots, as well as several pharmaceutical manufacturing and distribution companies. At the moment, Walgreens carries a market cap of $31.3 billion. Since the beginning of this year, WBA dropped over 31% of equity value.
Fundamentally, WBA appears poised to benefit from everyday relevance. While its pharmacy business certainly caters to the post-pandemic new normal, stuff happens all the time. From the common cold to the flu to tummy aches, the human body occasionally needs assistance.
Investors can tether their portfolios to this constant (arguably inelastic) demand stream while also collecting a forward yield of 5.4%. Not only is this yield generous, but the payout ratio is 43%. Again, this might be reasonable based on the circumstances.
Financially, Walgreens presents an attractive case for Dow stocks to buy because of its discount. Per Gurufocus, WBA trades for 7.3 times TTM earnings. In contrast, the industry median is a lofty 22.2 times.
Procter & Gamble (PG)
When faced with troubling economic circumstances, investors should typically target boring Dow stocks. Frankly, it doesn’t get more boring than Procter & Gamble (NYSE:PG). About the only thing that’s exciting about this company was that at one point, the firm sued individuals spreading false rumors about its links to Satanism. Aside from that, PG merely represents a household goods giant.
Unfortunately for stakeholders, PG suffered unusually steep losses, down over 17% YTD. Frankly, this seems to run counter with established fundamentals and logic. Therefore, it really should be one of the Dow stocks to buy.
For instance, the company pays a forward yield of 2.7%. While not the most generous source of passive income, here’s the deal: Procter & Gamble has 66 years of consecutive dividend increases. Believe me, management will not let that simply fade without good reason.
Also, the company represents a profitability machine. For example, its net margin is 18%, ranking better than over 91% of its rivals.
Home Depot (HD)
On surface level, it’s understandable why Home Depot (NYSE:HD) stands among the Dow stocks suffering sharp losses. Since the beginning of the year, HD dropped more than 28% of equity value. That’s unusual for the home improvement stalwart. Then again, the deterioration of the real estate market – a victim of rising mortgage rates – doesn’t help matters.
Still, you can probably guess my next words: HD represents one of the Dow stocks to buy. Fundamentally, Home Depot doesn’t just cater to housing booms. Irrespective of economic conditions, things just foul up around the home, in some cases quite literally. Therefore, the company’s demand flow is at least partially inelastic.
Another factor to consider is that Home Depot brings the heat regarding income-statement metrics. For example, its three-year revenue growth rate stands at 14.7%, above nearly 79% of its peers. Also, its net margin is nearly 11%, ranked better than over 86% of the industry.
Goldman Sachs (GS)
Finally, we arrive at Goldman Sachs (NYSE:GS), easily the riskiest name on this list of Dow stocks as far as I’m concerned. Logically, the main headwind for GS centers on global recession fears. With several central banks bolstering their currencies through the unwinding of balance sheets, the resultant money tightening imposes deflationary forces. That is, hawkish monetary policies should spark the opposite outcome of dovishness (i.e. inflation.)
Frankly, if Goldman Sachs and other institutions had an option, they might (though it’s speculation) prefer inflation. Sure, deflation brings higher borrowing costs, thus benefiting lenders via increased profitability. But deflation also hurts business sentiment. At least with inflation, people have an incentive to spend money because of currency erosion, thus boosting economic activity.
So, why gamble on GS when it’s down 13% this year? Simply, deflationary forces boost Goldman’s wealth management arm with extra relevance. Under an ecosystem of rising prices, anyone can be a stock-picking god. But the real experts know how to make money during economic downturns. Since Goldman clearly has a resource advantage over the little guys in the financial advisory space, it just might outperform.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.