The Dow Jones Industrial Average is off to a strong start this year, topping 31,000 for the first time on expectations of a post-COVID-19 economic recovery and heavy federal stimulus spending.
But looking ahead, some Dow Jones stocks look stronger than others.
Taken out of context, everything looks hunky dory. The blue-chip barometer is up 3% for the year-to-date as of Feb. 22, while the broader S&P 500 added 3.2%. The tech-heavy Nasdaq Composite, meanwhile, has tacked on 5% so far this year.
On the downside, investors have a long way to go in 2021, and uncertainty remains as elevated as ever. High-priced technology and other momentum stocks have hit turbulence, at least in the short-term – and some investors are looking at many of the 30 Dow Jones stocks for solace.
But which ones look best at the moment?
To that end, we’ve screened the Dow by analysts’ average recommendation, from worst to first, using data from S&P Global Market Intelligence.
Here’s how the ratings system works: S&P surveys analysts’ stock calls and scores them on a five-point scale, where 1.0 equals a Strong Buy and 5.0 is a Strong Sell. Scores between 3.5 and 2.5 translate into a Hold recommendation. Any score higher than 3.5 is a Sell rating, and a score below 2.5 means that analysts, on average, rate the stock as being Buy-worthy. The closer a score gets to 1.0, the stronger the Buy recommendation.
Read on as we show you how Wall Street’s analysts rate all 30 Dow stocks and what they have to say about their prospects.
Stock prices, analysts’ recommendations and other data as of Feb. 22, courtesy of S&P Global Market Intelligence.
Walgreens Boots Alliance
- Market value: $42.2 billion
- Dividend yield: 3.8%
- Analysts’ average recommendation: 2.91 (Hold)
The COVID-19 pandemic benefited lots of retailers in the consumer staples industry, but Walgreens Boots Alliance (WBA, $48.86) sure hasn’t been one of them. Lockdowns and a shift to online shopping have not only crimped the global pharmacy chain’s sales, but also its profit margins.
A new CEO – Rosalind Brewer takes the reins from Stefano Pessina on March 15 – and the ongoing rollout of VillageMD primary clinics co-located in WBA stores could change the equation later this year. But at this point, Wall Street’s consensus view is Hold.
“Ongoing reimbursement headwinds coupled with new consumer habits that we think will last longer than the pandemic keeps us on the sidelines,” writes CFRA Research analyst Arun Sundaram, who rates the stock at Hold.
Be that as it may, WBA has been good to income investors. Over the past five years, the company has raised the dividend at an annualized rate of 6.4% – a trend analysts expect to continue.
Of the 22 analysts covering Walgreens’ stock tracked by S&P Global Market Intelligence, two call it a Strong Buy. Meanwhile, 18 call it a Hold, and two say it’s a Sell. That gives it the lowest overall average recommendation among the 30 Dow Jones stocks.
Earnings growth is expected to be so-so going forward, with analysts projecting 6.3% average annual profit expansion over the next three to five years.
3M
- Market value: $102.0 billion
- Dividend yield: 3.4%
- Analysts’ average recommendation: 2.89 (Hold)
3M (MMM, $176.12), which makes everything from adhesives to electronic touch displays, continues to be one of the more underwhelming Dow Jones stocks in the current bull market.
Although COVID-19 created significant incremental sales growth for the industrial conglomerate’s divisions that make personal protection equipment, those businesses account for only a fifth of 3M’s sales, analysts note, and are coming up against difficult year-over-year comparisons. Meanwhile, health care, the largest and most profitable segment, is recovering from lower demand for elective surgical procedures.
To make matters worse, regulatory risks have heightened regarding polyfluoroalkyl substances (PFAS). The chemicals, which have a vast number of applications, have been linked to environmental and human health harms. The so-called Blue Wave in D.C. elevates these regulatory risks, analysts say.
“Higher respirator sales in 2021 could perhaps account for 1% of incremental organic sales growth (primarily in the first half of 2021),” says William Blair equity research analysts, who rate MMM at Market Perform (Hold). “We sense that 3M’s oral care and medical solutions, which compose about 70%-75% of its healthcare segment (24% of 2020 total sales), will benefit from the return of elective procedures in the second half.”
Of the 18 analysts covering MMM tracked by S&P Global Market Intelligence, two rate it at Strong Buy and two say Buy. But 11 call it a Hold, two have it at Sell and one says Strong Sell. Their average target price of $190.56 gives MMM modest implied upside of 8% over the next 12 months or so.
Travelers
- Market value: $37.3 billion
- Dividend yield: 2.3%
- Analysts’ average recommendation: 2.81 (Hold)
Warren Buffett gave Travelers (TRV, $147.87) the boot from Berkshire Hathaway’s (BRK.B) portfolio last year, but the insurance company still has its fans.
William Blair analysts like it plenty, for instance. “For investors looking for value-oriented plays, Travelers is attractive,” they say. “Hardening market conditions should result in materially higher earnings levels over the next several years.”
Argus Research (Buy) concurs. “Fourth-quarter earnings were substantially higher than we expected and underlying profitability improved in both Business and Personal Insurance,” writes Argus Research’s Kevin Heal (Buy) in a note to clients. “Catastrophe losses were also much lower. We expect margins to increase as the company raises prices on auto insurance and expands its data analytics and digital initiatives.”
What’s also enticing, Argus Research adds, is that TRV raised the dividend by 3.6% in early 2020 and has $1.2 billion remaining on its $5 billion share repurchase program.
The bear case on insurance stocks like Travelers is that they’ve been clobbered by the coronavirus outbreak. Low interest rates and low core margins don’t help either, though an improving environment for the former could help. Still, for now, Wall Street’s average call is a Hold, based on one Buy, 12 Holds three Sells and one Strong Sell.
Meanwhile, an average price target of $150.06 gives TRV shares meager implied upside of less than 2% in the next 12 months.
Intel
- Market value: $246.7 billion
- Dividend yield: 2.2%
- Analysts’ average recommendation: 2.80 (Hold)
Intel (INTC, $60.71) has fallen far behind the competition on any number of fronts. That explains why analysts and investors were so happy when the chipmaker said it hired Pat Gelsinger, former CEO of VMWare (VMW), to take over in February.
“We think the recent CEO hire of Pat Gelsinger is the best decision the company has made in over a decade,” says CFRA Research’s Angelo Zino, who rates shares at Hold. “While a CEO change doesn’t solve INTC’s problems, we give it a better chance to succeed.”
Be that as it may, the new chief has his work very much cut out for him.
“Our biggest concern for INTC has been the recent and potential market share loss within the Data Center space,” Zino says. “Mr. Gelsinger’s ties in this arena will undoubtedly help it put up a better fight.”
Although the transition to working-from-home has given the chipmaker a lift, customer spending is expected to moderate in the months ahead, notes Wedbush’s Matt Bryson, who rates INTC at Underperform (Sell). Demand for personal computers should also tail off.
“While eventually Mr. Gelsinger’s hiring could turn INTC’s execution around, any shift will almost be prolonged and success is not a certainty,” Bryson says.
Sell calls are rare on Wall Street, and certainly among the Dow 30 stocks, but INTC has a total of 10 of them: seven Sell ratings and three Strong Sell ratings. Seventeen analysts say shares are a Hold, five call them a Buy and eight say Strong Buy.
Dow
- Market value: $46.5 billion
- Dividend yield: 4.6%
- Analysts’ average recommendation: 2.70 (Hold)
It took a while for shares in chemical giant Dow (DOW, $62.48) to reclaim their pre-crash peak, but they’re humming along now. DOW has gained around 30% over the past six months, against about a 16% rise in the S&P 500.
Collectively, however, analysts are hardly abuzz; their average recommendation comes to Hold. That caution is in part due a lack of clarity into future prices for polyurethane (PE) chemicals.
Deutsche Bank downgraded Dow to Hold from Buy in November 2020, citing slowing price momentum for polyethylene. Bernstein Research likewise downgraded Dow – to Market Perform (Hold) from Outperform (Buy) – toward the end of 2020, saying the demand boost for PE created by the pandemic is largely played out. Additionally, a wave of new Chinese capacity coming online could lead to an oversupply of PE later this year.
The bottom line is the bull and bear cases for Dow come down to the outlook for PE prices, and that’s a tough forecast to make. As a result, most analysts are playing it safe. Fourteen of them rate shares at Hold, while three have DOW stock at Strong Buy, two say Buy and one says Strong Sell.
Wall Street expects the company to generate average annual earnings growth of 11.3% over the next three to five years, according to S&P Global Market Intelligence.
International Business Machines
- Market value: $107.7 billion
- Dividend yield: 5.5%
- Analysts’ average recommendation: 2.60 (Hold)
International Business Machines (IBM, $120.86) is another of the blue-chip Dow Jones stocks getting mostly lukewarm reviews from analysts.
The Street was optimistic about CEO Arvind Krishna when he succeeded Ginni Rometty in April 2020. But that was before the global economy came crashing down. It didn’t take long for the standard narrative of a company in secular decline to come roaring back.
The big news around IBM these days is its partnering with Palantir Technologies (PLTR) on a new solution merging artificial intelligence, data processing and hybrid cloud for the enterprise. Meanwhile, the company continues to incorporate Red Hat, which it acquired in 2019 in a $34 billion deal, the largest in the company’s history. The marriage is intended to help IBM catch up to Microsoft (MSFT) and Amazon.com (AMZN) in highly lucrative cloud-based services.
Analysts remain skeptical about IBM despite its efforts to deliver top-line growth.
“We remain cautious as IBM has had trouble delivering growth over the past 10 years,” say William Blair equity research analysts, who rate the stock at Market Perform. “IBM’s planned spin-off of its Managed Infrastructure Services business will create further noise in 2021 and may push out the time it takes for the partnership to gain traction.”
Blair adds that it remains concerned about decelerating revenue growth at Palantir over the next one to two years.
Three analysts see IBM as a Strong Buy, and another says it’s a Buy. However, 10 call Big Blue a Hold, while one says it’s a Sell. Meanwhile, long-term growth expectations come to 9.8% annually over the next three to five years.
A little more encouragingly: In January 2021, IBM became the most recent Dow stock added to the S&P Dividend Aristocrats – a list of companies that have raised their dividends annually for at least 25 years.
Caterpillar
- Market value: $118.9 billion
- Dividend yield: 2.0%
- Analysts’ average recommendation: 2.54 (Hold)
Caterpillar (CAT, $218.06), the world’s largest manufacturer of construction and mining equipment, is another Dow stock that stands to benefit from recent changes in D.C.
“Democratic Party control of the presidency and congress bodes well for federal infrastructure spending in 2021,” says CFRA Research’s Elizabeth Vermillion, who calls shares a Buy. “Under Joe Biden’s presidency, it is possible that infrastructure spending could also be part of a COVID-19 relief package.”
But before the bulls get ahead of themselves, CAT investors also have to factor in the slow pace of global economic recovery and what it could mean for the oil and gas industry, which counts itself among Caterpillar’s biggest customers. Bank of America Global Research has a Neutral (Hold) rating on CAT in part because of its “more conservative view on energy.”
“Oil prices are rising, but the outlook for energy capital expenditures is structurally challenged,” says BofA. “Exxon just reduced its five-year outlook by $50 billion.”
Although analysts average target price of $206.30 gives Caterpillar’s stock 5% implied downside over the next 12 months, it’s hanging on to a consensus recommendation of Hold.
Of the 25 analysts covering CAT tracked by S&P Global Market Intelligence, six rate it at Strong Buy, four say Buy, 12 call it a Hold, one says Sell and two say Strong Sell. If there’s anything for longer-term investors to hang their hat on, it’s a three- to five-year profit outlook of 12% annually on average.
Boeing
- Market value: $124.1 billion
- Dividend yield: N/A
- Analysts’ average recommendation: 2.52 (Hold)
Boeing (BA, $212.88) suffered the largest annual loss in its history in 2020, hurt by the COVID-19 pandemic, the long-running crisis over the safety of its 737 MAX airliner and a $6.5 billion charge related to the delay of its all-new airliner, the 777X.
Its problems aren’t over, either. Boeing had to ground 69 of its 777-series aircraft after a United Airlines (UAL) flight suffered an engine failure that resulted in debris landing across a suburban Denver neighborhood.
For now, analysts are incrementally more positive on the name now that its 737 Max airliner has resumed flights, and the worst of the slump in air traffic is presumably behind it.
Although passenger volumes aren’t expected to return to 2019 levels until 2024, according to the International Air Transport Association, Boeing recorded its highest monthly aircraft delivery total for 2020 in December despite no 787 deliveries, says Baird equity research, which rates BA at Outperform (Buy).
And long-term investors can take heart in Argus Research’s bullish thesis: “(Boeing) faces numerous near-term challenges … but it has superior long-term prospects due to its significant backlog and strong presence in the growing commercial aerospace industry,” says analyst John Eade. “Further, its profitable Defense segment is a top 5 defense contractor.”
Still, Boeing’s average recommendation comes to Hold. Redburn equity research, for example, downgraded BA to Sell from Hold late last year, telling analysts that the company’s tailwinds are stronger than its headwinds, and that bulls should “curb their enthusiasm.”
The last of the Hold-rated Dow Jones stocks has mixed reviews. Eight analysts tracked by S&P Global Market Intelligence call the stock a Strong Buy, and two say it’s a Buy. But nine call it a Hold, one says Sell and three give it a Strong Sell rating.
Verizon
- Market value: $233.6 billion
- Dividend yield: 4.5%
- Analysts’ average recommendation: 2.48 (Buy)
Verizon (VZ, $56.45) is the first of the Dow Jones stocks to snag a consensus recommendation of Buy – albeit barely. On S&P Global Market Intelligence’s scale, a score of 2.5 or lower is a Buy. (A stock needs a score of 1.5 or lower to be considered a Strong Buy.)
Bulls note that the big picture comes down to the rollout of 5G networking and VZ’s defensive franchise.
“We maintain our Outperform rating on Verizon,” says Raymond James analyst Frank Louthan IV (Outperform). “With a safe dividend yield and low leverage, we believe the market favors Verizon’s 5G strategy and simpler story. Whether we are in an expansion or a contraction, consumers’ internet and mobile plans may be the last thing they’re willing to give up when times get tough.”
Bears are less charitable when it comes to Verizon’s 5G plans, and they worry about increased competition following Sprint’s merger with T-Mobile (TMUS).
“Verizon’s heavy reliance on millimeter wave spectrum for its 5G network is a poor strategy,” says CFRA Research’s Keith Snyder. “While its network is certainly fast, its coverage area lags as compared to AT&T and T-Mobile. Our Sell recommendation reflects its weak spectrum portfolio, declines in its media business, and market share loss to T-Mobile.”
American Express
- Market value: $109.5 billion
- Dividend yield: 1.3%
- Analysts’ average recommendation: 2.43 (Buy)
The Street’s collective wisdom tips American Express (AXP, $135.95) into the Buy camp. Seven analysts rate AXP at Strong Buy, five say Buy, 13 call it a Hold and three say Sell.
And for what it’s worth, AmEx is one of Warren Buffett’s all-time favorite stocks. The CEO of Berkshire Hathaway first bought shares in the firm in 1963 and remains its largest shareholder by far today.
Mostly, the Street is split between worries about the ongoing impact of the pandemic and optimism over an eventual economic recovery. CFRA Research, for example, is in the bear camp.
“Overall, billed business has improved from the pandemic lows but is still down 20% year-over-year,” says CFRA’s Chris Kuiper, who assigns AXP a Hold rating. “Non-travel and entertainment (T&E) spending has recovered to pre-Covid levels, remains very depressed.”
A more bullish view acknowledges AXP’s weaknesses but prefers to focus on valuation and other sources of fundamental strength.
“We believe that the recent coronavirus-driven selling pressure is overdone, and see value in the shares at less than 15-times our EPS estimate for 2021, when we expect an earnings recovery to be underway,” says Argus Research’s Stephen Biggar. “Although business, travel and entertainment categories have been particularly hard hit, spending has improved in other categories, particularly some retailers and e-commerce.”
Amgen
- Market value: $133.7 billion
- Dividend yield: 3.0%
- Analysts’ average recommendation: 2.33 (Buy)
Amgen (AMGN, $231.47), which replaced Pfizer (PFE) in the Dow last year, is one of BofA’s favorite biopharmaceuticals stocks for 2021. In fact, it has no shortage of fans these days.
The company’s top line has bounced back in a big way since declining sales of mature products caused revenue to retreat in 2019. And bulls think the AMGN’s return to growth is just getting started.
Despite headwinds from the pandemic, “Repatha, Prolia and Evenity sales demonstrated solid growth in the quarter,” say William Blair analysts, who rate AMGN at Market Perform.
However, Credit Suisse, which rates the stock at Outperform (Buy), struck a note of caution following fourth-quarter results.
“While Amgen delivered modest top and bottom line beats, reconciling the other various moving parts in 2021 gives us pause looking ahead,” say Credit Suisse’s analysts. “While Amgen has been adapting to the COVID-19 pandemic by embracing their digital capabilities, we expect current trends of the virus will continue to cause headwinds for their commercial business throughout the year, with baseline assumptions assuming some ‘normality’ come late 2021.”
Of 30 analysts surveyed by S&P Global Market Intelligence, nine rate the stock at Strong Buy, five say Buy, 14 call it a Hold, one says Sell and one calls it a Strong Sell. They expect the firm to deliver average earnings growth of 7.4% over the next three to five years.
Cisco Systems
- Market value: $191.8 billion
- Dividend yield: 3.2%
- Analysts’ average recommendation: 2.27 (Buy)
Analysts have become incrementally less bullish on Cisco Systems (CSCO, $45.43) over the past few months as its shares have outpaced the broader market. CSCO stock has gained about 11% over the past three months – a period in which analysts’ average earnings and revenue forecasts inched up – vs a gain of 9% for the S&P 500.
Morgan Stanley analysts, who rate CSCO at Overweight (Buy), like the company’s “ability to perform with relative stability through a significantly weakened macro environment, preserve earnings power and maintain cash flow flexibility.”
CSCO is transitioning from being heavily dependent on hardware such as internet routers and switches to higher-growth software and cloud services.
It has been a challenge, to say the least.
Although the Street’s consensus view leans toward being bullish, caution abounds. Eight analysts rate shares at Strong Buy and three say Buy, but 16 call it a Hold. That jibes with their average target price of an average price target of $51.59, which gives CSCO implied upside of about 14% in the next year or so.
The Street expects this Dow Jones stock to deliver average annual earnings growth of 5.3% for the next three to five years, while its shares change hands at 14.7 times fiscal 2021 projected earnings.
Procter & Gamble
- Market value: $311.7 billion
- Dividend yield: 2.5%
- Analysts’ average recommendation: 2.13 (Buy)
Consumer staples stocks such as mega-cap Procter & Gamble (PG, $126.58) were early winners from the pandemic and rolling lockdowns. People will always need products such as P&G’s Charmin toilet paper, Head & Shoulders shampoo and Crest toothpaste.
But now some analysts worry about increasingly difficult year-over-year comparisons. Stifel Research downgraded PG to Hold from Buy in late January, citing that challenge, among others.
“We anticipate share gains continuing, though also think relative outperformance is likely to narrow as comparisons become increasingly difficult,” say Stifel analysts. “Additional headwinds include higher commodity and freight costs, and an anticipated increase in promotional activity.”
UBS Global Research shared some of the same concerns in wake of the company’s fourth-quarter earnings.
“For the (stock’s) multiple to re-rate higher, we believe investors need to see evidence of (long-term) consumer behavior changes and PG’s ability to price in an inflationary environment for freight and commodity costs,” notes UBS’s Sean King, who has a Neutral rating on PG shares.
Nine analysts rate the stock at Strong Buy, four say Buy, 10 have it at Hold and one says Sell. They expect JNJ to deliver average annual earnings growth of 7.3% over the next three to five years.
Honeywell
- Market value: $141.6 billion
- Dividend yield: 1.8%
- Analysts’ average recommendation: 2.08 (Buy)
As a group, analysts are bullish on Honeywell (HON, $203.62), one of the newest Dow Jones stocks.
But some think it’s overpriced at current levels.
Shares in the industrial conglomerate took off in late October but have since lost steam. HON is up 27% over the past six months, but flat since late January. As much as analysts like the company, some say its prospects are already reflected in shares.
“We see HON’s growth area (protective gear) in a short-term demand wave, while its problem areas (aerospace, energy, and commercial buildings) are likely to see long-term demand weakness,” says CFRA Research’s Colin Scarola, who rates the stock at Sell. “Given this poor outlook, we think shares are overvalued.”
Hold calls based on valuation are fairly common for Honeywell. Indeed, a total of 10 analysts tracked by S&P Global Market Intelligence rate HON at Hold. It’s just that eight Strong Buy calls and five Buys calls more than offset neutral or negative views. (One analyst has it at Sell.)
One thing that the bulls can point to is the company’s record of success and reputation. Honeywell’s blue-chip reputation makes it an ideal stock for long-term investors, says Argus Research (Buy), citing its history of paying and raising the dividend, financial strength and talented management team.
JPMorgan Chase
- Market value: $455.6 billion
- Dividend yield: 2.4%
- Analysts’ average recommendation: 2.07 (Buy)
JPMorgan Chase (JPM, $149.41) gets an average rating of Buy from Wall Street analysts, and they collectively have a bit more conviction on the name than they did at this time in 2020. A smattering of upgrades has improved JPM’s average recommendation to 2.07 (Buy) from 2.61 (Hold) a year ago.
Although the financial services sector as a whole has to contend with minuscule interest rates and higher loan-loss reserves, among other issues, analysts say JPM is a standout.
“JPM reported better-than-expected fourth quarter earnings … as the bank released loan loss reserves due to an improving macro economic forecast and continued customer access to liquidity,” notes B. Riley analyst Steve Moss, who rates the money-center bank at Buy. “Results affirmed our expectation that fourth quarter and 2021 bank earnings should show substantial improvement as credit costs abate and that the sector remains attractively valued.”
Argus Research reaffirmed its Buy call on JPM in light of fourth quarter earnings. “We continue to like JPM among the large banks given its better lending growth profile, strong credit card franchise, and expected market share gains across capital markets business lines,” Argus’ Stephen Biggar writes in a client note.
Thirteen analysts rate JPM at Strong Buy, six say Buy and six say Hold. Meanwhile, one bear says the stock is a Sell, and another two say Strong Sell. Their collective long-term growth rate stands at 8% for the next three to five years.
For what it’s worth, Warren Buffett turned bearish on JPM in 2020. Berkshire Hathaway cut its stake in the bank by 95% in the third quarter of 2020.
Goldman Sachs
- Market value: $109.0 billion
- Dividend yield: 1.6%
- Analysts’ average recommendation: 2.07 (Buy)
Goldman Sachs (GS, $316.87) had a strong end to the year, helped by equity underwriting and equities trading.
Compared to peers, GS has the largest portion of revenue coming from the capital markets, notes Piper Sandler. Although that could make the investment bank more sensitive to a slowdown in trading and underwriting, Piper, which rates the stock at Overweight, expects more strength ahead.
“Robust capital markets activity levels continued in the fourth quarter and have so far persisted in (the first quarter of 2021),” write a team of Piper Sandler analysts. “Management noted its expectation for a near-term continuation of the current capital market activity trends, but noted that there are certain areas in banking and markets from which they do not expect a repeat of 2020.”
Argus Research, which rates GS at Hold, is more cautious on the forecast for capital markets.
“While the (fourth) quarter was stronger than expected, we believe rampant debt and equity issuance over the past two quarters will slow, while volatility will likely subside now that U.S. election re-positioning has taken place, resulting in tough comparisons for investment banking and trading businesses in 2021,” notes Argus analyst Stephen Biggar.
Despite that view, the bulls outnumber the bears on this Dow stock. Of the 27 analysts following the stock polled by S&P Global Market Intelligence, 10 call it a Strong Buy, eight say Buy and seven have it at Hold. The remaining two analysts rate it at Sell and Strong Sell, respectively.
Johnson & Johnson
- Market value: $426.1 billion
- Dividend yield: 2.5%
- Analysts’ average recommendation: 1.95 (Buy)
All eyes are on Johnson & Johnson’s (JNJ, $161.87) bid for approval of its COVID-19 vaccine. The Food and Drug Administration will convene an independent panel on Feb. 26 to recommend whether the vaccine should be authorized for use in the U.S.
An approval would benefit a wide array of Dow Jones stocks besides JNJ. The market sees the single-dose vaccine as a critical tool in the fight against the pandemic. We’ve already seen broader-market reactions to updates about the vaccine’s progress.
Credit Suisse tells clients that approval of the JNJ vaccine should be “positive for the recovery.” CFRA Research says “JNJ’s vaccine might be a key differentiator to accelerate the vaccination campaign in the U.S.”
It’s a lot of pressure. But long-term JNJ investors should remember to keep the approval in perspective. After all, the vaccine is still a very small part of the company’s earnings prospects. More important is Johnson & Johnson’s success in integrating Momenta Pharmaceuticals, which it acquired in 2020 in a $6.5 billion deal. Bulls also point to its strong pharmaceutical pipeline and a rebound in medical devices as patients undergo elective procedures they put off during the pandemic.
“In addition, the company is benefiting from a growing consumer business,” says Argus Research (Buy), noting strength in oral care, wound care and skin health & beauty products.
Eight analysts rate the stock at Strong Buy, four call it a Buy and seven say Hold. The Street forecasts average annual earnings growth of 7.7% for the next three to five years, according to S&P Global Market Intelligence.
Coca-Cola
- Market value: $217.8 billion
- Dividend yield: 3.3%
- Analysts’ average recommendation: 1.92 (Buy)
Although the pandemic put a crimp on sales at restaurants, bars, cinemas, live sports and other events, analysts are mostly optimistic about Coca-Cola’s (KO, $50.63) prospects, giving the stock a consensus recommendation of Buy.
Bernstein Research in January initiated coverage of this bluest of blue chips, telling clients the company is undergoing an “underappreciated cultural overhaul” and “multiyear turnaround story” set to drive a prolonged period of sales, margin and earnings expansion.
UBS’s Sean King, which rates KO at Buy, notes that continued volume weakness and the overhang of ongoing tax litigation could weigh on investor sentiment. Meanwhile, CRFA Research’s Garrett Nelson, who rates Coca-Cola at Hold on tax litigation unknowns, says the “plummeting U.S. dollar should boost KO’s operating income and on-premise sales should improve as restaurants and other venues gradually re-open.”
Altogether, 10 analysts rate KO at Strong Buy, six say Buy and eight call it a Hold. They expect the Dow stock to generate average annual earnings growth of 5.1% over the next three to five years.
Finally, let’s not forget Coca-Cola’s status as a Dividend King. The beverage company has lifted its payout annually for almost 60 years.
Chevron
- Market value: $189.4 billion
- Dividend yield: 5.4%
- Analysts’ average recommendation: 1.96 (Buy)
Now that Exxon Mobil (XOM) has been booted from the Dow, Chevron (CVX, $98.39) remains the lone energy play among the 30 Dow Jones stocks, and it’s not just the analysts who are all in on it.
Warren Buffett, chairman and CEO of Berkshire Hathaway, surprised Wall Street by initiating a sizable stake in the oil major in the final quarter of 2020. BRK.B bought more than 48 million shares in Q4 valued at $4.1 billion.
Although energy prices aren’t expected to make huge moves in the year ahead, the outlook for oil and gas is much improved and should only get better as the global economy recovers from the depths of the pandemic, analysts say.
Indeed, CVX was able to take advantage of the worst of the industry’s woes in July 2020 by acquiring Noble Energy in a $5 billion all-stock transaction.
Chevron, like the rest of the oil and gas industry, has been forced to double down on capital spending cuts and other cost savings as it grapples with ultra-low energy prices. And it’s a strategy the oil major has the wherewithal to pull off, or so say the pros.
“In this environment, we believe that a company’s balance sheet strength and place of the cost curve are critical, and favor integrated oil companies (IOCs) that are well positioned to manage a potentially long period of low oil prices,” says Argus’s Bill Selesky, who rates shares at Buy. “We believe that CVX is one of these companies as it benefits from best-in-class production growth, industry-low operating costs, and a strong balance sheet. We also believe the dividend is safe and sustainable.”
Of the 25 analysts covering the stock tracked by S&P Global Market Intelligence, nine call it a Strong Buy, nine say Buy and eight rate it at Hold. CVX is projected to deliver average annual earnings growth of more than 22% over the next three to five years, thanks to easy year-over-year comparisons.
Apple
- Market value: $2.1 trillion
- Dividend yield: 0.6%
- Analysts’ average recommendation: 1.85 (Buy)
Analysts expected Apple’s (AAPL, $126.00) September 2020 launch of the latest iteration of the iPhone to spark an upgrade “super-cycle,” and those predictions are so far bearing fruit.
The company just enjoyed its most profitable quarter ever, thanks to strong sales of high-end iPhones and a pandemic-driven surge in demand for its laptops and tablets.
Given AAPL’s latest run of success, it’s no surprise that analysts as a group are increasingly bullish on the name. Of the 40 analysts issuing recommendations on the stock tracked by S&P Global Market Intelligence, 21 have it at Strong Buy, eight rate it a Buy, eight call it a Hold, two say Sell and one says Strong Sell.
In a note titled “iPhone 12 Strength Not Slowing Down; More Good News on the Horizon,” Wedbush Securities analyst Daniel Ives positively gushes over the gadget maker.
“Given the fundamental strength we are seeing for this supercycle, coupled by a further re-rating on the horizon, we believe Apple will hit $3 trillion in market value by year-end,” says Ives, who rates the stock at Outperform. (Apple’s current market value sits just north of $2.1 trillion.)
Adds Ives: “The hearts and lungs of the Apple growth story are built around iPhone installed base upgrades. With 5G now in the cards and roughly 40% of its ‘golden jewel’ iPhone installed base not upgrading their phones in the last 3.5 years, Apple’s CEO Tim Cook has the stage set for a supercycle 5G product release to play out in 2021.”
Analysts’ takes aside, there is perhaps no bigger Apple bull than Warren Buffett. The chairman and CEO of Berkshire Hathaway has allocated almost half of his holding company’s equity portfolio to AAPL.
“I don’t think of Apple as a stock,” Buffett has said. “I think of it as our third business.”
Home Depot
- Market value: $297.0 billion
- Dividend yield: 2.2%
- Analysts’ average recommendation: 1.85 (Buy)
A country basically cooped up at home has been great for business at Home Depot (HD, $275.85). The nation’s largest home improvement retailer has seen business boom since the pandemic began, and analysts think the trend – and HD’s stock – has plenty more room to run.
Argus Research’s Christopher Graja, who rates shares at Buy, does as a good a job as anyone in summarizing the bulls’ case on Home Depot stock:
“We believe that sheltering-at-home has given consumers the time and inclination to take on small home improvement projects. HD is a potential beneficiary if consumers continue to reallocate a portion of their spending from traveling and eating out to working, relaxing and studying in a safe comfortable home and yard. HD could also be a beneficiary of greater attention to cleaning and disinfecting.”
Of the 33 analysts covering the Dow stock tracked by S&P Global Market Research, 15 call it a Strong Buy, none have it at Buy, eight say Hold and one rates it a Sell. Their average long-term forecast calls for average annual earnings growth of 7.5% over the next three to five years.
As for valuation, at around 23 times expected earnings, HD trades in line with the S&P 500 and at a slight premium to its own five-year average.
Walmart
- Market value: $389.6 billion
- Dividend yield: 1.6%
- Analysts’ average recommendation: 1.81 (Buy)
Walmart’s (WMT, $137.69) years of heavy investments in e-commerce were intended to fend off the strategic challenge of Amazon.com. Management couldn’t have foreseen that a global pandemic would also justify spending massive sums on building out the channel.
As a one-stop shop for all manner of goods, and consumer staples in particular, Walmart has been delivering better-than-expected results. The world’s largest retailer, once under threat of becoming a brick-and-mortar dinosaur, is now a huge player in e-commerce as well.
The discount retailer’s U.S. e-commerce sales grew 79% in the quarter ended Oct. 31. Indeed, it’s now the second largest e-commerce retailer in the U.S., although its market share (5.9%) is far smaller than Amazon’s (39%).
While some shareholders might worry about the cost of giving all U.S. employees wage increases, UBS’s Michael Lasser (Buy) says higher pay should allow WMT to “find more productive employees, resulting in a multitude of benefits.”
BofA Global Research analysts rate the stock at Buy, citing the benefits of having both a physical and online presence: “We believe WMT’s omni-channel transformation in the U.S. will continue to gain momentum and support more sustainable and predictable positive same-store sales and traffic at U.S. Supercenters and in U.S. e-commerce.”
Eighteen pros rate WMT stock at Strong Buy, nine have it at Buy, seven call it a Hold and two say Sell, according to S&P Global Market Intelligence.
Merck
- Market value: $189.6 billion
- Dividend yield: 3.5%
- Analysts’ average recommendation: 1.65 (Buy)
Merck’s (MRK, $74.93) stock has been underperforming the market by so much for so long that analysts say it’s simply too cheap to go without.
Indeed, the pharmaceutical giant’s shares are off about 9% over the past year, vs. a gain of about 16% for the S&P 500.
Analysts forecast Merck to generate average annual earnings growth of almost 8% over the next three to five years. Yet the stock changes hands at less than 12 times its 2021 earnings forecast. The S&P 500, meanwhile, trades at around 22 times projected earnings.
Central to Merck’s fundamental performance is Keytruda, a blockbuster cancer drug approved for more than 20 indications. That said, analysts are quick to point out that MRK is not a one-trick pony.
“While revenues missed for Q4 investors likely will/should care more about key growth drivers Keytruda, Gardasil and Lynparza which all beat – the miss was driven by stocking impact of Pneumovax and older products Januvia/Janumet,” writes UBS’s Navin Jacob. “Importantly ’21 guidance is strong.”
Merck should see stronger end-market demand for its products as physician offices reopen, elective surgeries resume and pet owners return to veterinary offices.
“We keep our strong positive long-term outlook for MRK,” says CFRA Research, which rates shares at Buy. “We see a favorable patent setup with no key brands losing marketing exclusivity until 2022, and MRK’s growth engine, Keytruda, on patent until 2028.”
Thirteen analysts call MRK a Strong Buy, five say Buy and another five have it at Hold, according to S&P Global Market Intelligence.
Walt Disney
- Market value: $348.1 billion
- Dividend yield: N/A
- Analysts’ average recommendation: 1.70 (Buy)
Coronavirus took a huge bite out of some of Walt Disney’s (DIS, $191.76) most important businesses: namely, its theme parks and studios, but after encouraging quarterly results, analysts say business is set to bounce back in a big way.
“While the near-term visibility remains somewhat limited by the COVID-19 surge, DIS is one of the likely prime beneficiaries of further reopening of the global economy, with improved near-term prospects of vaccine development,” says CFRA Research, which calls the stock a Buy.
In the meantime, CFRA likes that DIS is “systematically pivoting to a direct-to-consumer-centric strategy on COVID-19 demand tailwinds for its streaming offerings (Disney+, ESPN+, Hulu).” The entertainment behemoth reached more than 120 million aggregate subscribers in its fiscal first quarter, and remains on track with the international rollout of Disney+.
The Street, on average, is solidly bullish on Disney stock. Fifteen analysts rate it at Strong Buy, six say Buy, five call it a Hold and one has it at Sell. They project the company to generate average annual earnings growth of 9% over the next three to five years.
Nike
- Market value: $215.5 billion
- Dividend yield: 0.8%
- Analysts’ average recommendation: 1.70 (Buy)
In the race for price returns, Nike (NKE, $136.67) has smoked the broader market over the past year but lately has started to look a bit winded.
Shares in the maker of athletic footwear and apparel are up about 36% over the past 52 weeks, more than double the performance of the S&P 500. For the year-to-date, however, the race is reversed. NKE is off more than 3% vs. a 3% rise in the broad market gauge.
Not that most analysts are worried. If anything, the recent bout of underperformance just means investors can pick up shares in NKE at a more attractive price.
Deutsche Bank, for example, recently reiterated its Buy recommendation, telling clients the company is in a class by itself.
“We remain Buy rated, as NKE is a best-in-class consumer brand with an innovative product pipeline in running, basketball, yoga and sportswear for men & women,” says Deutsche Bank’s Paul Trussell. The analysts note that Nike’s “robust digital and strong overall direct sales growth is lifting the margin profile as it becomes a bigger part of the mix.”
The bottom line is that Nike is benefiting disproportionately from increased consumer interest in staying healthy and dressing casually in the work-from-home environment, Trussell adds.
Of the 33 analysts covering this Dow stock who are tracked by S&P Global Market Intelligence, 17 rate it at Strong Buy, 10 say Buy, five have it at Hold, and one slaps a Sell call on the name.
UnitedHealth Group
- Market value: $310.9 billion
- Dividend yield: 1.5%
- Analysts’ average recommendation: 1.64 (Buy)
Analysts have long been highly bullish on UnitedHealth Group (UNH, $327.64), and they appear to be getting more so. The stock’s current average recommendation of 1.64 trends favorably against the 1.67 it scored three months ago, per S&P Global Market Intelligence, and it sits among the five best-rated Dow Jones stocks at the moment.
Fourteen analysts rate shares in the mammoth health insurance company at Strong Buy and six call it a Buy. Five have it at Hold. A significant part of the bulls’ investment thesis on the name comes down to valuation. UNH trades at just 18 times estimated earnings for 2021. They go for an even more attractive 15.6 times 2022’s expected earnings. And yet earnings are forecast to increase at an average annual pace of nearly 15%.
Put succinctly, UNH looks like a rare bargain stock in an otherwise pricey market. The S&P 500 currently fetches 22 to 23 times expected earnings.
In a dissent with The Street’s consensus view, UBS Global Research says that although UNH posted solid fourth-quarter results, investor sentiment appears hindered by uncertainty about life after COVID and federal policy unknowns.
“Post-quarterly results stock action has been muted despite positive results given the number of open ended questions likely to remain unresolved for a period of time,” writes UBS, which rates UNH at Neutral. “Further, political risks will likely persist for a longer period of time but arguably too are discounted at current levels.”
McDonald’s
- Market value: $158.0 billion
- Dividend yield: 2.4%
- Analysts’ average recommendation: 1.68 (Buy)
McDonald’s (MCD, $212.06) stock has been a serious market laggard in the pandemic, hurt by a steep drop in in-store traffic, but a number of analysts see it as a golden way to bet on the post-COVID-19 recovery.
Shares in MCD are essentially flat for the past 52 weeks, vs. a gain of about 16% for the S&P 500. But bulls say the way forward looks considerably brighter as the fast-food giant comes up against easier year-over-year comparisons.
UBS’s Dennis Geiger, who rates shares at Buy, expects sustained sales strength in the U.S. and a return to “solid international trends once government restrictions are lifted in key markets.”
Upcoming revenue catalysts include menu upgrades and innovation, including the return of spicy nuggets and a new chicken sandwich, UBS notes. Enhanced marketing strategies and spending, a refocus on breakfast marketing as store foot traffic returns, and digital investments should also help boost the top line.
Here’s how Wedbush’s Nick Setyan, who rates shares at Outperform, sums up his Outperform call: “We believe MCD’s ongoing menu, technology, marketing, and capital expenditure investments render visibility into sustained sales growth in a post-COVID global restaurant environment.”
Twenty-one analysts rate this Dow Jones stock at Strong Buy, seven have it at Buy and nine call it a Hold, according to S&P Global Market Intelligence.
Salesforce.com
- Market value: $221.1 billion
- Dividend yield: N/A
- Analysts’ average recommendation: 1.57 (Buy)
Salesforce.com (CRM, $240.95), which was added to the Dow in 2020, was doing cloud computing before before cloud-based services were cool. The stock has been clobbering most Dow Jones stocks on an annualized basis for a long time, and analysts as a group expect more outsized gains to come.
After all, CRM is ideally positioned to take advantage of today’s trends, the Street says.
“The new work-from-home paradigm (or perhaps the developing home/office hybrid) has increased demand for software solutions for cloud computing, distributed computing, edge computing and collaboration software,” writes Argus Research’s Joseph Bonner (Buy). “Well before the pandemic hit, Salesforce had leveraged its industry position as the top customer relationship software provider to become a critical partner in enterprise digital transformation. It is now benefiting as this trend continues to gain momentum.”
Credit Suisse echoes that view, saying Salesforce.com is set up for a big year.
“We believe CRM will outperform in 2021 driven by its leadership in enabling digital transformations and ability to execute against this secular trend,” say CS analysts, who rate the stock at Outperform. “According to our 2021 CIO Survey, Salesforce was named a key strategic vendor to organizations, only behind Microsoft and Amazon AWS.”
CS adds that Salesforce.com’s $28 billion acquisition of Slack last year is another reason to be optimistic about CRM.
Twenty-eight analysts covering CRM tracked by S&P Global Market Intelligence rate the stock at Strong Buy, seven say Buy and nine call it a Hold. They forecast the company to generate average annual earnings growth of more than 22% over the next three to five years.
Visa
- Market value: $445.2 billion
- Dividend yield: 0.6%
- Analysts’ average recommendation: 1.58 (Buy)
Few blue-chip Dow 30 stocks get as many high marks from analysts, mutual funds, hedge funds and even Warren Buffett than Visa (V, $208.32).
Of the 40 analysts covering the payments processor tracked by S&P Global Market Intelligence, 22 call Visa a Strong Buy and 10 have it at Buy, and six say it’s a Hold. Two analysts have no opinion.
As the world’s largest payments network, Visa is well-positioned to benefit from the growth of cashless transactions and digital mobile payments. Indeed, analysts polled by S&P Global Market Intelligence expect Visa’s profits to increase an average of more than 19% annually over the next three to five years.
Although COVID-19 took an axe to certain transaction volumes – such as cross-border travel – Visa is poised to bounce back as the pandemic eases, making it a solid recovery play, bulls say.
“Cross-border volumes were again hard hit in the first quarter, down over 20%, as two-thirds of this spending has historically come from global travel,” says Argus Research’s Stephen Biggar, who rates V at Buy. “But payment volumes and processed transactions both bottomed in April 2020, and have improved consistently since then.”
Argus Research adds that it continues to expect secular growth in payment volumes and believes that “solid cost controls and strong buyback activity will aid earnings.”
Microsoft
- Market value: $1.8 trillion
- Dividend yield: 0.9%
- Analysts’ average recommendation: 1.39 (Strong Buy)
Microsoft (MSFT, $234.51) might be the world’s second-largest publicly traded company after Apple, but it once again beats the iPhone maker when it comes to being analysts’ favorite Dow Jones stock.
Indeed, MSFT is the only one of the Dow’s 30 components to get an average rating of Strong Buy from analysts tracked by S&P Global Market Intelligence. The key to the bull case on MSFT is its astonishing success in cloud-based services for enterprise customers and consumers, alike.
“This current work from home environment is further catalyzing more enterprises to make the strategic cloud shift with Microsoft across the board with Azure growth remaining brisk,” says Wedbush’s Daniel Ives, who places MSFT (Outperform) on the firm’s Best Ideas List. “In many cases we are seeing enterprises accelerate their digital transformation (larger deals) and cloud strategy with Microsoft by 6 to 12 months as the prospects of a semi remote workforce for the foreseeable future looks here to stay.”
Argus Research says MSFT’s management and good timing make shares an easy Buy call.
“CEO Satya Nadella has pivoted Microsoft toward high-value commercial and cloud application businesses, just the right product set as enterprises rapidly move to the cloud and remote connectivity,” writes Argus analyst Joseph Bonner. “As expected, Azure and the Xbox gaming console refresh drove impressive December-quarter results. All three of the company’s segments reported double-digit revenue growth.”
Twenty-five analysts rate shares at Strong Buy, eight say Buy and three call MSFT a Hold. They forecast the Dow stock to deliver average annual earnings growth of 14.2% over the next three to five years.
