The Dow Jones Industrial Average is the oldest and perhaps most prestigious stock index in the world … but it’s not exactly the hippest.
Sure, the Dow is still composed of 30 of the most prominent and recognizable companies in the world. But half those companies were founded more than a century ago; the average Dow Jones company is 111 years old.
By their nature, Dow Jones stocks are dinosaurs, and their greatest period of growth is well in the rear-view mirror, if not completely out of sight.
It’s no wonder, then, that the S&P 500 — which casts a much wider net that captures a lot more high-growth companies — has beaten the Dow Jones in pure price performance in just about any meaningful time period. The Dow is great for solid, reliable dividend payers … but you can’t find growth there, right?
Not every Dow Jones stock has lost its edge, and in fact, a few of the index’s components are still growing at a much better-than-average pace. So if it’s growth you seek, consider one or more of the following seven Dow Jones stocks.
Dow Jones Stocks to Buy: General Electric (GE)
General Electric Company (GE) is about much more than light bulbs these days.
Today, GE dabbles in a variety of big-money industries: aviation, healthcare, oil and gas, food and beverage, retail and water. Few companies are more diversified than General Electric, and as a result, GE is less vulnerable to weakness in any one of its businesses.
Overall, sales and earnings have been up and down the last few years, but because General Electric has its hands in so many pies, there’s always some good news for the company to report. And many investors buy stocks based on the headlines.
Like many Dow Jones stocks, GE is a dividend stalwart: It boasts a 3% yield, and has been returning money to shareholders since 1899. But there’s plenty of share price appreciation to go with the reliable income stream.
GE shares are up more than 13% in the past year, far outpacing the 1.1% drop in the Dow as a whole. And analysts’ projections of 15%-plus earnings growth for GE wildly outdoes the industry projection of just 3%, so more outperformance could be on the way.
Dow Jones Stocks to Buy: Home Depot (HD)
The housing market continues its post-subprime mortgage crisis recovery, and many of those new homeowners are choosing The Home Depot, Inc. (HD) when they need a hammer, a ladder or a mower.
Housing starts have more than doubled since their depths of the Great Recession, while existing home sales have increased by more than 50% since 2010.
Home improvement has followed suit.
After slipping in 2008, 2009 and 2010, Home Depot’s sales have increased every year since, and remained steadily in the 5%-6% range each of the past four years. The company’s profits are even better, with double-digit EPS growth every year since 2009. Home Depot isn’t expecting business to slow anytime soon: Sales are expected to top $100 billion by 2018, up from $88 billion last year.
As for the stock, HD is up 24% in the past 12 months and 73% in the past two years, and it has more than tripled since the housing bubble burst. So has the dividend, which yields a respectable 2.1%. Meanwhile, earnings growth is expected to clock in at 15% and 14% over the next two years.
Dow Jones Stocks to Buy: Visa (V)
The former has convinced people around the world to break out the plastic again; the latter has given them more ways to do it. In today’s digital world, it’s easier than ever to pay for anything anywhere so long as you have a credit card handy.
As a result, Visa’s business has been flourishing: Earnings have improved by at least double digits (triple digits in 2013!) in each of the last three years. Sales growth hasn’t been too shabby either, at 8% in 2014 and 9% last year. Visa shares have responded in kind, improving 17% in the past year and 50% over the past two years — far outpacing the returns of rival MasterCard Inc (MA).
Analysts aren’t too hot on Visa’s prospects for this year, projecting earnings and revenue growth of about 6%, but next year, profits are expected to balloon by 15% on sales growth of around 12%.
Dow Jones Stocks to Buy: McDonald’s (MCD)
It’s no secret that McDonald’s Corporation (MCD) has lost customers the last few years, particularly in the U.S., as America finally pushes back against its obesity epidemic. Sales and earnings have fallen for two straight years.
Despite that, McDonald’s is winning the image battle at a time when many other fast-food companies are losing.
New ventures such as its Breakfast All Day feature and healthier menu items such as the kale salad have kept McDonald’s in the headlines, and that’s starting to show up in top-line growth. Same-store sales have improved more than 5% in the U.S. in each of the two quarters since those features were introduced. Meanwhile, profits are improving: EPS increased 9.9% last quarter, and they’re expected to improve by more than 11% this year and next year.
Investors have taken notice of those promising signs, pushing McDonald’s stock up 34% in the last year on the heels of a couple years of stagnation.
Some analysts declared McDonald’s a dying a company; instead, it has become reinvigorated and elevated to new all-time highs.
Dow Jones Stocks to Buy: Nike (NKE)
Upstarts such as Under Armour Inc (UA) are gaining traction, but Nike, Inc. (NKE) remains the undisputed king of sports apparel. “The Swoosh” owns more than 90% of the global basketball shoe market and nearly 60% of the total shoe market (athletic or not) in North America, and 60% of the U.S. running shoe market.
Better yet, it’s growing — revenues improved by 10% last year, topping $30 billion for the first time.
According to the company, that’s just the tip of the iceberg. Nike aggressively projects sales to reach $50 billion by 2020 — an increase of $20 billion in the next five years — thanks in large part to its burgeoning e-commerce presence and inroads with women by improving its “athleisure” line made popular by Lululemon Athletica Inc. (LULU).
The company is quite profitable too, with EPS growth of better than 20% for each of the last seven quarters.
All that growth is rare for a Dow Jones stock, and it’s why NKE shares have returned nearly 18% in the last year, 63% in the last two years and 174% in the past five years.
Wall Street isn’t anticipating a slowdown: the average price target for NKE is $71 — 20% higher than its current $59 share price.
Dow Jones Stocks to Buy: Travelers (TRV)
Yes, an insurance company that’s a component of the Dow Jones Industrial Average doesn’t exactly scream exciting growth.
But the stock does.
Shares of The Travelers Companies, Inc. (TRV) are up nearly 8% in the past year and 22% in the last two years, both of which have easily outpaced the market. After 160 years in business, Travelers is America’s second largest property casualty insurer and third largest personal insurer. It also offers businesses cyber liability insurance, which in today’s world of constant cyber threats is a huge potential avenue for growth.
Travelers’ numbers won’t blow you away — sales have mostly been in the 1-3% growth range the last five years, and actually declined 1.3% last year. But a return to sales growth (3%) this year, paired with a low P/E of just 10, could help propel TRV forward in the future.
Dow Jones Stocks to Buy: Johnson & Johnson (JNJ)
Long one of the market’s premier dividend stocks, Johnson & Johnson (JNJ) isn’t necessarily synonymous with growth. Indeed, sales have been either flat or negative in each of the last six quarters.
That makes JNJ a dark horse on this list. But here’s why it belongs:
Much like General Electric, Johnson & Johnson’s diversity is a big advantage; it makes medical devices for hip replacements and coronary stents, plus consumer products such as Band-Aids, Listerine, and its signature baby shampoos.
And you can’t beat the dividend growth: JNJ has increased its quarterly payout 54 years in a row, and boasts a current yield of 2.9%.
The basic human need for healthcare and health-related products isn’t going away anytime soon, and as long as the market stays rocky, the desire for stable companies with generous dividends won’t abate soon, either. Just look at JNJ’s 9% gains across a mostly flat 2016.
That is why Johnson & Johnson could be an outperformer, despite its otherwise less-than-lofty growth metrics.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.