Since its creation, the Dow Jones Industrial Average has become one of the representatives of the overall health of the stock market. Thirty companies make up the Dow Jones and the index, on occasion, changes the holdings due to mergers and acquisitions, and also to better represent the overall market. In 2017, the Dow Jones Index is up nearly 5%.
All 30 Dow Jones stocks are large stocks with market caps all over $30 billion. Dividends are paid by all thirty components as well. With a wide range of dividend yields, sectors and market cap size, there are many ways to consider investing in the Dow Jones Industrial Average.
Investors looking to capture the gains of the entire index should consider the large SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA). Other ETFs and mutual funds also follow the index, but this is the largest and easiest way for investors to get exposure to the Dow Jones stocks.
As far as individual stock picking in the index, investors should look at which stocks have produced minimal gains or fallen in 2017. Catalysts like new drugs, market expansion and bullish growth cycles in their sectors are also signs of a potential winning stock.
With that in mind, here are the three best Dow Jones stocks to buy right now.
Best Dow Jones Stocks to Buy: Merck & Co., Inc. (MRK)
Merck & Co., Inc. (NYSE:MRK) is one of two largest drug companies, along with Pfizer Inc. (NYSE:PFE) that are included in the Dow Jones. Merck shares are up 8% in 2017 and continue to sport an impressive dividend yield of 3%. Drug companies continue to see pressure on pricing and patent expiration of major blockbusters. MRK caught my eye with a new blockbuster drug that is just starting to hit home run potential.
Merck’s Keytruda is a humanized antibody in the new class of immunotherapy drugs targeting cancer cells. The drug has been approved for several treatments, but is also in more than 160 trials worldwide and continues to see its sales potential increasing for analysts.
Keytruda is targeting areas like melanoma, lung cancer, head cancer, and neck cancer. Keytruda is seen as a top 20 drug by the year 2020 with an estimate of $4.5 billion. Rival cancer drug Opdivo from Bristol-Myers Squibb Co (NYSE:BMY) is listed as the potential number three overall drug in 2020 with sales of $8 billion. If trials continue to go as planned, Keytruda could continue to shrink the gap as the drug is winning faster approvals and potential better treatment options.
In 2015, MRK received an amazing unpaid celebrity endorsement for Keytruda. Former President Jimmy Carter took Keytruda to fight his metastasized melanoma. After radiation and Keytruda, Carter was cancer free, an amazing testimony to Merck’s drug and its potential.
In fiscal 2016, Keytruda had sales of $1.4 billion, an increase of 148%. Fourth-quarter sales of Keytruda increased 125% to $43 million. The drug was Merck’s fourth best-selling in 2016 and has already risen. In the first quarter of fiscal 2017, Keytruda trailed only Januvia ($1.3 billion) with $584 million in revenue, an increase of 134%. It seems the early guesses that this drug would be worth $4.5 billion by 2020 might have been on the conservative side. Keytruda could be worth more than $2 billion in annual sales already in 2017, a nice pull for MRK.
Merck raised its full year guidance slightly in the first quarter, a positive sign even before the additional approval for Keytruda. The company sees full year revenue in a range of $39.1 to $40.3 billion. Earnings-per-share are seen hitting a range of $3.76 to $3.88. Both of these ranges come in slightly down to slightly above the last fiscal year. There’s more to MRK than Keytruda, but this drug is definitely a reason to make it one of the best Dow Jones stocks to buy.
Best Dow Jones Stocks to Buy: Verizon Communications Inc. (VZ)
When looking for stocks to buy, sometimes its best to start on the bottom.
In the Dow Jones, that would bring us to Verizon Communications Inc. (NYSE:VZ). The nation’s largest telecommunications company is down double digits in 2017 as it has seen a loss in subscribers. The company is investing heavily in 5G technology, which could be just the right step in a never-ending battle for being the best phone company for customers.
Verizon beat out rival AT&T Inc. (NYSE:T) in a bidding war for Straight Path, a holding company of spectrum. The deal gives Verizon a huge advantage in the race to 5G network development. Straight Path was worth only $400 million months ago, before causing the two largest U.S. phone companies to finally decide $3 billion was the value of the assets it held.
With the deal, VZ gets Straight Path’s huge wave spectrum in the 28 GHz and 39 GHz millimeter levels. The spectrum is used for mobile communications and believed to help faster connections for downloads and powering the newest connected devices, like self-driving cars.
Verizon has been making many moves in the market of expanding its 5G capabilities. Deals brought it fiber optics supplies from Corning Incorporated (NYSE:GLW) and Prysmian Group, and also a $1.8 billion deal to acquire XO Communications outright.
Back in May, rival T-Mobile US Inc (NASDAQ:TMUS) said it would be the first in the nation to build a 5G network, with a planned 2020 national rollout. T-Mobile paid $8 billion in a Federal Communications Commission auction to get spectrum towards its 5G plans. VZ sat out this auction and according to analysts, didn’t need the spectrum. T-Mobile, which has been gaining subscribers from other phone companies, will have an advantage if it can get the 5G market first. Verizon may be close behind, with trials already happening and now an impressive library of assets to create its national presence.
In 2016, Verizon saw EPS fall to $3.87. Revenue of $126 billion was down 4.3% from the prior year. The first quarter continued this trend with a 4.5% drop in revenue as the company continued to lose subscribers. Gaining a foothold in 5G to win customers as a fast connector go a long ways in minimizing losses or maintaining subscriber figures.
VZ shares sit near their 52-week lows. With the drop in 2017, shares currently yield just north of 5%, making this one of the top yielding stocks in the Dow Jones. Verizon has seen revenue fall, but moves in 5G and strengthening its media library (AOL, Yahoo! Inc. (NASDAQ:YHOO)), could be the right recipe to see the stock rebound in the latter half of 2017. Verizon remains on the list of stocks to buy from the Dow Jones.
Best Dow Jones Stocks to Buy: United Technologies Corporation (UTX)
United Technologies Corporation (NYSE:UTX) is one of the oldest components of the Dow Jones Industrial Average.
The industrial conglomerate traces its inclusion back to 1939 when it was known as United Aircraft. Today, UTX operates with four divisions, Otis elevators, UTC Climate, Controls & Security, Pratt & Whitney and UTC Aerospace. With all four businesses now seeing growth, UTX is on the list of stocks to buy.
Last year, United Technologies saw its Climate, Controls & Security division as its largest revenue driver (29%), followed by Pratt & Whitney (26%), UTC Aero (25%) and Otis (20%). The good news for investors is the largest margins come from the UTC Climate division. This division has margins of around 25%, compared to the near 16% from UTC Aerospace and Otis, and the 10 to 11% range from Pratt & Whitney.
The first quarter saw strong sales growth for all four divisions. Overall sales increased 3% to $13.8 billion. The strong results helped UTX stay confident in its earlier guidance. Executives expect annual sales in a range of $57.5 to $59.0 billion and EPS between $6.30 and $6.60.
I have written several times about the bullish aerospace and defense sector happening now, including how a Trump presidency is helping defense stocks. UTX benefits from that cycle with its Pratt & Whitney and UTC Aero divisions. The real standout here to put this stock on the list is the Otis division.
Take a look the next time you are in an elevator, chances are it is an Otis. The company is one of the four largest elevator makers and after years of heated competition and domestic slowdowns is returning to growth through innovation and international markets. Strong demand for Otis is coming from India and airports, where the company has an impressive market share for automated walkways. Excluding China, orders for Otis were up 11% in the first quarter, representing strong growth in other markets.
UTX may be one of the oldest Dow Jones stocks, but it’s not done growing yet. The company’s four divisions all look strong in their current cycles. The company has set goals for 2020 and is currently using money towards share repurchases and potential acquisitions ($1 to $2 billion as a placeholder). UTX is among the best Dow Jones stocks to buy here.
As of this writing, Chris Katje did not hold a position in any of the aforementioned securities.