Since late March, investor optimism has pushed broader indices generally higher. And the Dow Jones Industrial Average seems to have been rallying non-stop. Yet, in the past few days, volatility with a downward bias has returned to the markets. Therefore today, I’ll discuss three Dow Jones companies to buy in long-term portfolios amid the market chaos.
Our economy is not out of the woods yet. Gross domestic product (GDP) has been declining whereas unemployment rate has been rising to levels not seen in recent history. On June 10, The Federal Reserve kept interest rates unchanged. Its statement highlighted the “tremendous human and economic hardship across the United States and around the world.”
Despite the recent exponential up moves we’ve seen on Wall Street, which can potentially be dubbed investor euphoria, many people on Main Street are still nervous about the impact of the pandemic on their lives. And health and economic question marks are likely to stay with us for some time to come.
In the past several weeks, many analysts have called the market rather overvalued. Thus it may not necessarily be a V-shaped recovery and the bottom may have yet to come.
Are you one of those investors who are is worried that further volatility may put pressure on broader indices and many stocks? Then it may be time to look for good-quality blue-chip names that are likely to weather further headwinds in 2020. With that in mind, here are three Dow Jones companies to buy now:
Dow Jones Companies to Buy: Cisco Systems (CSCO)
Earlier in May, California-based Cisco Systems released Q3 results that beat expectations. It reported non-GAAP earnings of 79 cents per share on revenue of $12 billion, a decline of 8% year-over-year (YoY).
The group divides revenue into two main segments, i.e. Products and Services. The Products segment is divided further into three divisions:
- Infrastructure Platforms (most important), includes sales of core networking technologies of switching, routing, data center products, and wireless;
- Applications, includes sales of software-oriented offerings that sit on top of Infrastructure Platforms; and
- Security, includes sales of threat detection, management and security products and cloud and system management tools.
Overall, the results confirmed that the business is stable and diversified. Although the coronavirus pandemic has already impacted the business, management has taken several steps to protect the balance sheet as well as the safety of employees and continuity of operations.
And CEO Chuck Robbins highlighted the potential for further growth opportunities for Cisco due to increased levels of working from home. He said “The pandemic has driven organizations across the globe to digitize their operations and support remote workforces at a faster speed and greater scale than ever before. We remain focused on providing the technology and solutions our customers need to accelerate their digital organizations.”
Analysts are expecting 5G internet to be another major growth opportunity for the global technology leader, especially in terms of its infrastructure business. The company is providing operators with a full platform to build 5G capabilities.
Furthermore, Cisco is hoping to become a major player in Industrial Internet of Things (IIoT) by offering solutions to firms wanting to connect industrial systems to the internet. And management is pushing the company toward a mostly subscription-based software business. In Q3 subscriptions brought in 74% of total software revenue.
On June 10, the Board declared a quarterly cash dividend of 36 cents per common share to be paid on July 22 to all shareholders of record as of the close of business on July 6. The current yield sits at 3.1%.
Year-to-date (YTD), CSCO stock is down about 4.6%, hovering at $45. In the coming days, a potential drop below $45 and especially toward $42.5 would make it one of the Dow Jones companies to buy in the long run.
Coca-Cola (KO)
Coca-Cola is the world’s largest nonalcoholic beverage company. It offers over 500 brands in more than 200 countries. Its top five soft drink brands, i.e., Coca-Cola, Diet Coke, Fanta, and Sprite, are recognizable globally.
In late April, the group released Q1 results. Revenue of $8.6 billion meant an adjusted EPS of 51 cents per share. Organic revenue, which takes out the impact of foreign currency, acquisitions and divestitures, was flat.
Management said global volumes have plunged 25% in April. In fact North America was the only region to see increased volume. The decline mainly came from the closure of restaurants, movie theaters and sports arenas.
On the other hand, the stay-home, work-from-home trend has boosted sales. About half of the revenue comes from consumption at home. Also stockpiling has meant higher sales through grocery stores and e-commerce channels.
Q2 results that are due in July are likely to represent a continuation of the trend seen in Q1. Coca Cola had already withdrawn its 2020 outlook in March.
Yet earlier in the year, before the pandemic hit our shores, the company had started 2020 with “solid momentum” and highlighted that the Coke brand, especially Coka-Cola Zero Sugar and smaller cans, has been boosting sales. As global economies continue opening, this trend may very well pick up again in the rest of the year.
KO stock is down around 16% YTD. The current price of $46.50 supports a dividend yield of 3.5%. The robust dividend yield, I believe, makes KO stock one of the Dow Jones companies to buy.
I’d look to buy the dips in Coca Cola, especially if the stock price goes toward $45 or even lower.
Dow Jones Companies to Buy: Johnson and Johnson (JNJ)
Healthcare giant JNJ is my defensive pick in these volatile markets. With a market cap of $379 billion, Johnson & Johnson is currently number 35 on the Fortune 500 list. Its broad-based operations and global reach brings in stable revenue and cash flow. Its century-plus history provides stability in uncertain times like we’re currently seeing.
When the group released Q1 results in mid-April, it beat analysts’ estimates. Revenue of $20.7 billion meant an adjusted EPS of $2.30. The quarterly result showed high profit margins and extensive global outreach.
The company divides revenue into three main segments:
- Pharmaceutical, which contributes more than 50% of JNJ’s pretax profits;
- Consumer; and
- Medical Devices.
Pharmaceutical division markets treatments for immunology, cardiovascular and metabolic diseases, infectious diseases and cancer. Within the consumer section, several of its well-known brands include Band-Aid, Listerine, Neutrogena, Rogaine, Tylenol and Zyrtec.
And the medical devices business develops products for surgery, orthopedics, and vision. Management highlighted a 8.2% decline in sales in its medical-device segment as many elective surgeries got cancelled during the lockdown.
During the quarterly release, the board also declared a 6.3% increase in the quarterly dividend rate, from 95 cents per share to $1.01 per share. The current JNJ stock price of $143.5 means a dividend yield of 2.8%. The next ex-dividend date is expected in late August.
The group has been in the news recently as one of the healthcare companies working on a vaccine against the novel coronavirus. On June 10, management said that its early stage human trials will begin in the second half of July, sooner than its initial forecast of September.
Since the lows seen in the markets in March, the shares are up about over 30%. Therefore some profit-taking is likely to be around the corner. I expect the stock to make a move toward $140 level or even below. But such a decline would make the shares even more enticing in a long-term portfolio.
If you’re looking to bolster defensive positions in your holdings, JNJ stock would be another one of the Dow Jones companies to buy.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.
