As our country wrestles with the economic damage caused by the novel coronavirus in the first quarter, many investors are understandably charting their longer-term strategies. But according to Hiroyuki Ito, professor of Economics in Portland State’s College of Urban and Public Affairs, the second quarter’s trajectory depends on “how much the world succeeds in curbing the spread of the virus.” Given the uncertainties, bullish contrarians may want to go with a tried-and-true approach: purchasing high-quality Dow Jones stocks.
Major blue chips have always enjoyed relevance regardless of the market cycle. Known for their stability and technical predictability, Dow Jones stocks can help mitigate any unexpected downfalls as you gear your portfolio for higher growth during bull markets. But in a downturn, these steady names are even more valuable.
Typically, blue chips pay dividends, which allow you to accrue passive income while you wait out a storm. Additionally, Dow Jones stocks are levered to critical businesses. Therefore, they are likely to keep the red ink manageable as opposed to speculative growth companies, which can quickly raise your blood pressure to dangerous levels. You may even see an uptick in momentum, depending on the circumstances.
Further, the corporations that make up the Dow 30 usually dominate their industries. Thus, any consolidation effect that could occur during a bearish phase could end up benefiting Dow Jones stocks. Specifically, I’m targeting these ten names:
- 3M (NYSE:MMM)
- Home Depot (NYSE:HD)
- Johnson & Johnson (NYSE:JNJ)
- Walmart (NYSE:WMT)
- McDonald’s (NYSE:MCD)
- Coca-Cola (NYSE:KO)
- IBM (NYSE:IBM)
- Microsoft (NASDAQ:MSFT)
- Nike (NYSE:NKE)
- Disney (NYSE:DIS)
As with any other investment that has been deeply impacted by the coronavirus, caution is still the name of the game. Even with Dow Jones stocks, you don’t want to get too comfortable. Take a modest position now, but make sure to have some ammo remaining for any dip-diving opportunities.
Although industrial giant 3M had obvious positive implications from the coronavirus — as you know, they make the highly demanded N95 facemasks — the first three months of 2020 weren’t particularly pleasant for MMM stock. Along with the fact that neither consumers nor healthcare professionals could get reasonable access to 3M’s personal protective equipment, the company faced accusations of selling their vital products to foreign entities.
Some handwringing and President Trump’s invoking of the Defense Protection Act appeared to have calmed tensions. Quickly, MMM stock responded with a robust performance so far in April. While these hiccups were not ideal from a PR perspective, the drama can’t detract from the obvious.
Previously, 3M was a lumbering, irrelevant organization. Now, they’re one of the most critical. In fact, MMM stock has inserted itself into a national debate of restarting our core infrastructure. If so, that would be a big win for American industry, which is why you should keep 3M on your list of Dow Jones stocks to buy.
Home Depot (HD)
Understandably, when the coronavirus panic first hit the U.S., many investors speculated on grocery firms like Kroger (NYSE:KR). Of course, it was a brilliant move as KR has enjoyed strong upside. But among Dow Jones stocks, Home Depot will probably benefit from a similar sentiment over the next few months.
Just like Kroger shares, an investment in HD stock gives you exposure to an essential service. Obviously, most people are concerned about having enough food and water. But once that anxiety subsides, we quickly come to a stark realization: life’s mishaps don’t pause just because human societies are suffering from a pandemic.
I’ll give you a silly but pertinent example. When I thought I had my basics covered, that’s when the bathroom lightbulb went out. I had spares, but I realized that for many people, incidents like these have caught them out. Therefore, even in a prolonged recession, I expect consistent demand to bolster HD stock.
Johnson & Johnson (JNJ)
For most investments, including several Dow Jones stocks, the Covid-19 pandemic is just about the worst news that could happen. And I’m not suggesting that Johnson & Johnson was hoping for such an outbreak to occur. Nevertheless, I can’t help but look at JNJ stock with some sense of cynicism. Without the coronavirus, we may be looking at Johnson & Johnson from a different lens.
Obviously, the ongoing asbestos controversy has cast a dark cloud on JNJ stock. Last year in October, shares took it in the chin when Johnson & Johnson announced a voluntary recall of its baby powder product due to asbestos contamination. Also, shares have reacted wildly to the company’s involvement in the drug addiction crisis.
Today? When JNJ stock flashes across your screen, you’re probably not thinking about any of these devastating controversies. Instead, you’re thinking about the healthcare giant’s many positives, including their over-the-counter medication portfolio that has allowed people with mild Covid-19 symptoms to recover.
As our own Tim Biggam argued, Walmart shares right now look “tired and toppy,” to use his language. Admittedly, I find it difficult to argue against that assessment. Plus, the fact that WMT stock is acting like this ahead of Walmart’s earnings report doesn’t inspire much confidence. But should shares tumble, you may want to consider adding the big-box retailer to your list of Dow Jones stocks to buy.
As I mentioned near the top, Walmart may benefit from a consolidation effect. Again, as a big-box retailer, Walmart offers consumers everything. Therefore, in a prolonged recession, I would have concerns about specialty retailers. After all, why would you shop at multiple locations when you can get both your necessities and your discretionary items in one place?
That said, you want to exercise some caution with WMT stock relative to other Dow Jones stocks. Although I like the coronavirus lift, holiday sales were soft in 2019 for brick-and-mortar retailers. Thus, it’s one warning sign to watch, especially if we enter a nasty recession.
Out of the Dow Jones stocks to consider for recession-proofing your portfolio, McDonald’s is one of the more perplexing names. Especially with a pandemic-fueled recession, you wouldn’t expect MCD stock to do well. For starters, customers must worry about how their food is handled, especially by low-income workers who feel they must work instead of calling in sick. Then there’s the simple fact that it’s much cheaper to cook your own food.
At the same time, even in economic downturns, people need a respite from their day-to-day struggles. For some, that may mean downsizing their dining out budget to fast-food eateries. In that case, purchasing MCD stock on any dips may be a shrewd acquisition.
Better yet, strong evidence exists for this approach. During the Great Recession, several fast-food restaurants saw an increase in sales. Therefore, it’s reasonable that to believe that MCD could move higher, if only for the reason that humans are predictable.
If you’re thinking about literal consumption-based Dow Jones stocks to buy, you may want to check out Coca-Cola. Just like McDonald’s, KO stock doesn’t immediately grab you as the best investment to avoid a coronavirus-fueled recession. Plain old water is much cheaper. Plus, drinking too much soda is very bad for your health. Not to belabor the point, but excessive consumption can also cause the underlying health conditions for which Covid-19 is especially deadly.
On the flipside, KO stock represents cheap escapism. During bull markets, people may have more expensive tastes for their celebratory occasions. Today, with money being much tighter, consumers will naturally cut back their expenses. But it’s unlikely that they’ll give up all frivolous pleasures in life.
Another point to consider about KO stock is that its underlying products are cheap pick-me-ups. As caffeinated drinks, Coca-Cola beverages offer a far less expensive alternative to iced coffee from Starbucks (NASDAQ:SBUX), for example. Thus, you don’t want to ignore this icon if you’re focusing exclusively on Dow Jones stocks.
Considering the damage that was inflicted on Dow Jones stocks by the Covid-19 pandemic, IBM produced solid results for its first-quarter 2020 earnings report. Against an earnings-per-share target of $1.80, Big Blue delivered $1.84. It also rang up $17.57 billion in revenue, which was a bit short of the $17.62 billion that analysts forecasted. However, the coronavirus impacted its growth opportunities.
But that’s not the reason why I’m bullish on IBM stock. As we put this ugly chapter behind us, there will be plenty of non-impacted earnings reports to dissect. Rather, the technology giant saw tremendous growth in certain segments even with the virus disrupting everything.
According to an email sent to me by Tim Davidson from IBM Corporate Communications, “despite the massive impact of COVID-19 in Italy, IBM’s business grew there by 5 percent — a remarkable performance that shows how clients turn to IBM in crucial situations for advanced technology and trusted data management and analysis.”
In times of trouble, people trust the technologies and innovations from respected brands. I couldn’t think of a better reason to bet on IBM stock.
Historically, Dow Jones stocks have been levered to big, industrial names. But over the last few years, the index has incorporated much more relevant companies like Microsoft. What I like about MSFT stock is that while this security probably won’t make you rich, it provides steady returns. Also, I love how the management team reinvigorated a software firm that was going stale.
Despite this coronavirus pandemic, I think Microsoft’s strengths shine through. For example, because of the nature of my profession, I would be dead in the water without the company’s Software as a Solution platform. Yes, other business suites exist but whether you like it or not, the world runs on Microsoft. That’s one viable reason to consider MSFT stock.
Another is that the leadership team emphasizes constant innovation and competitiveness. As a prime example, they’re making huge waves in the cloud computing space, giving Amazon (NASDAQ:AMZN) fits. Also, the company offers Microsoft Teams as an intuitive teleconferencing alternative to Zoom Video Communications (NASDAQ:ZM).
Right now, I’m not a big fan of consumer retail names. According to data from the U.S. Census Bureau, the retail segment suffered the worst hit in March. Within this category, the clothing and accessories segment was absolutely obliterated. Thus, you wouldn’t expect much from Nike and NKE stock.
But if you’re a daring individual, you may just want to consider putting it in your prospective list of Dow Jones stocks. As Matt McCall recently pointed out, Nike has tremendous customer loyalty that is unparalleled within the athletic apparel industry. A great example is the Colin Kaepernick controversy. Typically, companies avoid scandalous players like Kaepernick because it’s bad for branding. But Nike knew their audience and ran an advertisement featuring the polarizing figure.
Initially, some conservatives pushed back against the apparel behemoth. However, NKE stock won out in the end, driven by strong customer response. I imagine if Nike can get away with a Kaepernick ad, the coronavirus may not be that much of a challenge.
Fundamentally, when you stack up Disney against other Dow Jones stocks, it’s hard to imagine a more embattled organization. Actually, the oil companies like Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) are much worse. But DIS stock is taking it on the chin in its underlying pivotal businesses.
With movie theaters shut down due to Covid-19, it has unfairly lost hundreds of millions of dollars in box office revenue. Further, with stay-at-home orders, Disney’s resort business is non-existent. Then, you have the fact that there are no professional sports. If Disney-owned ESPN wasn’t already pointless, the coronavirus proved it in cruel fashion.
Yet I don’t expect this pandemic to be with us forever. When we finally reopen and the fear subsides, DIS stock could be a huge beneficiary of pent-up demand. It will take time, though, so be careful with this one.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.