The Dow Jones Industrial Average is on a roll. The storied index recently breached the psychologically significant 23,000 mark for the first time, and in doing so the Dow logged yet another all-time high.
Certainly, if you’ve owned the 30 Dow Jones stocks in 2017 you’ve done remarkably well. In fact, the Dow is up some 18.5% year to date (through midday Thursday), a move that relatively few pundits (myself included) would have thought likely at the beginning of the year.
Now the question for investors is: What, if anything, will push the Dow materially higher?
The answer, as I see it, lies in Washington, D.C. I think the key to Dow 24,000, and ultimately Dow 25,000, rests in the hands of Congress, and specifically the issue of tax reform. If we get some real tax reform that includes a sizeable cut to the corporate tax rate (to 20% or at most 25% from the current 35%) that will go a long way toward justifying the high valuations on stocks (the S&P 500 currently trades at about 18X 2018 earnings estimates).
The tax reform legislation released Thursday, however, was met with a lukewarm reception. Yet, while the macro backdrop of tax cuts will be the external catalyst for the Dow’s fate, that doesn’t mean all Dow Jones stocks will benefit equally.
To get the Dow to 25,000, we are going to need to see big gains in many of the Dow’s components. Yet which Dow stocks will have to shine in order to send the Industrial Average up through the 25,000 mark? The smart money wants to know, so allow me to pontificate.
Here are seven stocks that will send the Dow to 25,000.
Dow Jones Stocks: Apple Inc.
The world’s leading personal technology company is a relative newcomer to the Dow, as Apple Inc. (NASDAQ:AAPL) was only granted admission to the Industrial Average in March 2015. Yet in the two-and-a-half years since, Apple shares have jumped nearly 30%, a move that’s helped the Dow trek to record highs.
In early August, Apple’s stronger-than-expected, fiscal Q3 revenue and earnings easily bested estimates on the back of solid iPhone sales. That caused shares to rise sharply, and that rise helped the Dow breach the 22,000 on its way to one of many record highs in 2017.
But September was tough for Cupertino giant, as shares tumbled more than 6% that month on a disappointing initial reaction, and potential production delays, in its new iPhone 8 and X models.
For the Dow to move to 25,000, Apple is going to have to perform the way it did in August, when shares surged more than 10%. What can make that happen? It’s called a new iPhone for Christmas.
Dow Jones Stocks: Coca-Cola
Carbonated sugar with a distinctive flavor is popular around the globe, and that’s made Coca-Cola Co (NYSE:KO) and its flagship Coke brand one of the most successful consumer brands in corporate history. In recent years, the Coke brand has lost a bit of its fizz, but the beverage giant has adjusted nicely by promoting successful brands such as Sprite, Honest Tea and smartwater to its mix.
It was success in these brands that helped KO report better-than-expected third-quarter. Cost-cutting programs and the refranchising of its low-margin bottling operations also helped KO beat estimates. So far in 2017, shares are up nearly 12%.
That’s helped lift the Dow, but for the Industrial Average to surge to 25,000, KO will have to get out of its recent funk. Shares have basically traded flat over the past three months (up just 0.50%).
If investors begin opening the bottle again on KO shares, that will give the Dow a sugar high that could send it past 25,000.
Dow Jones Stocks to Buy: McDonald’s
Fast-food giant McDonald’s Corporation (NYSE:MCD) may be the oldest kid on the cheap restaurant block, but that just means the company has had time to figure out the ever-changing taste trends of its patrons. Key amongst those trends is the desire for “fresh” and health foods, and in recent quarters McDonald’s has promoted items that cater to that demand.
On Tuesday, the company reported Q3 earnings per share of $1.76. That was basically in line with expectations. Revenue was $5.8 billion, which was a slight beat vs. the $5.7 billion analysts had anticipated.
The really sound metric was the company’s same-store sales in the U.S. That number climbed 4.1%, far outpacing the 3.6% growth industry watchers had anticipated.
That same-store sales number is even more impressive considering it came during a period that included Hurricanes Harvey and Irma, which shut down many of its restaurants for days and even weeks.
So far in October, MCD shares are up nearly 5%. For the Dow to go to 25,000, we need MCD shares to serve up more solid gains.
Dow Jones Stocks: Walmart
Retail behemoth giant Wal-Mart Stores Inc (NYSE:WMT) is one of the few companies to, at least recently, figure out a balance between selling items in physical locations and selling online.
That mix of sales funnels allowed Wal-Mart to announce in early October during its annual meeting that it’s still expecting earnings per share to range from $4.30 to $4.40 for fiscal 2018, in line with current Street estimates.
The company also rather boldly announced that it expects its fiscal 2019 earnings per share to be up 5% from the year prior. Perhaps most impressively, the company’s renewed focus on online sales has allowed it to announce that it expects e-commerce in the U.S. to rise by some 40% in fiscal 2019. Part of that renewed focus includes an additional 1,000 online grocery locations in the U.S.
Wal-Mart’s share price is up nearly 11% in October, and that recent move helped lift the Dow past 23,000. To get the Dow past 25,000, we need more of the same from WMT stock.
Dow 25,000 Stock to Buy #5: Procter & Gamble
One of the Dow stocks that’s been lagging in 2017 (although it’s still up 4.3% year to date) is consumer products giant Procter & Gamble Co (NYSE:PG). The company recently reported “ok” fiscal Q1 earnings, which came in at an adjusted $1.09 vs. estimates for $1.08.
Revenue came in at $16.653 billion vs. $16.698 billion expected by analysts. That top-line figure did, however, represent 1% year-over-year growth. Ans when you take out the effects of changes in currency, we get organic growth that also came in at 1%.
Perhaps more important in the life of PG shares is the recent proxy battle with activist investor Nelson Peltz. That brawl has pressured PG shares. Of course, sagging segments such as the Gillette men’s grooming operations have damaged profits and the share price more than Peltz ever could.
If the Dow’s going to jump past 25,000 anytime soon, we need to see PG shares get back to favor with the smart money.
Dow Jones Stocks: IBM
The share price performance of “Big Blue” hasn’t been very big over the past five years, but it has been rather “blue.” In fact, International Business Machines Corp (NYSE:IBM) stock is down some 20% over that time, and that’s enough to give any investor the blues—especially when you consider the Dow is up almost 79% during that period.
Yet fortunes are beginning to turn, at least somewhat, for IBM. The company just released better-than-expected earnings for the third quarter, where it said adjusted EPS came in at $3.30, two cents per share better than what Wall Street was expecting. Revenue also beat expectations, coming in at $19.15 billion vs. the $18.6 billion expectation.
Shares jumped on the news, lifting IBM up more than 6% so far in October. That is the kind of strong performance from a hitherto laggard that we need to see if the Dow is going to vault to 25,000.
Dow Jones Stocks: 3M Co
One of the strongest performers in the Dow this year has been industrial products maker 3M Co (NYSE:MMM). The stock has powered some 30.5% higher year to date, and that gain has come on the back of solid earnings. In fact, the company, best known for its famous consumer brands Scotch, Post-It, and Scotch-Brite, recently reported strong Q3 results that easily beat expectations.
3M said its Q3 bottom line was $2.33 per share, well above estimates calling for EPS of just $2.21. That solid earnings metric came as a result of strong revenue, which came in at $8.17 billion, well above consensus estimates of $7.93 billion.
Impressively, 3M saw sales rise in each of its reporting segments. Leading the way was the electronics and energy segment, which climbed 13.1% year over year. 3M also saw sales growth in its industrial, its biggest overall segment, of 6.2% year over year to $2.8 billion.
If that weren’t enough bullishness for one report, the company also raised its full-year guidance for sales growth from 3% to 5%, to 4% to 5%, and its EPS forecast from the prior range of $8.80 to $9.05 to $9.00 to $9.10.
With a gain of nearly 11% so far in October, MMM shares already are spearheading the march toward Dow 25,000.