On February 1, the Dow Jones Industrial Average exceeded the 38,500 milestone, closing at an all-time high. The technical momentum and the positive earnings season mean this uptrend might continue. Given the bullish setup, we discuss some Dow Stocks for the next bull run.
So, why focus on the Dow Stocks for picks? As the markets surge to two-year highs, they continue to have narrow leadership. Indeed, the Magnificent Seven, excluding Tesla (NASDAQ:TSLA), has been spearheading the uptrend. In all honesty, their leadership is warranted since they are the main AI beneficiaries. Furthermore, they have shown significant progress in monetizing the technology.
Also, with uncertainties on the horizon related to U.S. elections and monetary policy, investors are piling into Dow components. Most Dow stocks are established large and mega caps with pristine balance sheets to weather any environment. Thus, they have become the new defensive stocks due to their robust balance sheets, leading innovation and consistent revenue growth.
When looking into Dow Stocks for the next bull run, three established giants with a proven track record for resilience and innovation come to mind. Each of these companies has distinct strategic advantages and a catalyst, making them a compelling pick for Feb. 2024 and beyond.
Apple (AAPL)
Apple (NASDAQ:AAPL) has long been a beacon of innovation. This month Apple launched its latest product, the Apple Vision Pro, highlighting its leadership in consumer electronics. Amid the impressive reviews, developers have also stepped up, releasing 600 new apps built for the device.
The company’s ability to launch products that define entire categories—be it the iPhone, iPad, or Apple Watch—underscores its core strength. That’s why the world’s greatest investor, Warren Buffet, regards it as the best business in his portfolio. Buffet has backed up this view, making Apple his largest holding.
Apple’s ecosystem, characterized by seamless hardware, software, and services integration, fosters unmatched brand loyalty. This loyalty ensures a steady flow of revenue from product sales. Additionally, it has supported a high-margin service business selling subscriptions like Apple Music, iCloud, and the App Store, which grew by 11.3% year-over-year.
One point of frustration for investors has been the lack of AI product announcements. However, based on Tim Cook’s comments in the recent earnings call, the company seems to have some products in the pipeline. “Let me just say that I think there’s a huge opportunity for Apple with Gen AI and AI, and without getting into more details and getting out in front of myself,” Cook said.
Markets are interpreting these comments to mean Apple could release AI products during its WWDC conference in June. In anticipation of the release, AAPL stock will move higher, making it one of the top Dow Stocks for the next bull run.
Goldman Sachs (GS)
Due to its expertise in investing banking, Goldman Sachs (NYSE:GS) is a top pick for the upcoming bull run. In 2023, it maintained its number-one position in equity and equity-related underwriting and announced and completed mergers and acquisitions. Considering its leadership in investment banking and markets, Goldman is one of the best Dow Stocks for the next bull run.
Over the past two years, Goldman has seen a significant dent in revenues due to the IPO drought in 2022 and 2023. The investment bank’s bread and butter is equity and debt underwriting as well as mergers and acquisitions advisory. Revenues from these segments declined from peak 2021 levels as the Federal Reserve engaged in an aggressive hiking cycle.
However, the downturn is near the end, and green shoots are emerging. For instance, in 2023, major IPOs like Arm Holdings (NASDAQ:ARM) were well received having successful debuts. These debuts can lead to stronger deal activity this year.
Furthermore, with monetary policy stabilizing hence reducing uncertainty, business could accelerate. Already, optimism is rising as the company announced a significant increase in its advisory backlog in its Q4 2023 earnings call.
If the bull market continues, it will spur a lot of IPOs, debt issuance and mergers. The prowess of Goldman Sachs in these areas means it will capture a significant portion of this activity advising clients. At ten times forward earnings, GS stock is a bargain.
Microsoft (MSFT)
As Q2 fiscal year 2024 results revealed, Microsoft (NASDAQ:MSFT) is winning in AI. Notably, it’s one of the most compelling growth stories in artificial intelligence. The company is innovating with speed and gaining significant market share.
In the quarter, total revenues increased 16% year-over-year to $62 billion. Microsoft Cloud revenue surged to $33.7 billion compared to $27.1 billion in the same period last year. Clearly, cloud revenues are accelerating with growth at 24% YOY compared to 22% in Q2 FY2023.
Azure AI suite of cloud-based AI services and cognitive APIs is enabling developers and businesses to build and deploy AI solutions at scale. Microsoft is winning market share due to Azure’s AI advantage. Today, Azures offers the best infrastructure for AI training and inference and has the most diverse AI accelerators.
Per the latest earnings report, it had over 53,000 Azure AI customers. Over a third of these customers signed up over the past 12 months, highlighting the surging demand. Its Azure OpenAI Service is also seeing significant growth. The service features the latest models, including GPT-4 Turbo, DALL-E 3 and GPT-4 with Vision.
Impressively, over half of Fortune 500 companies are using the product today. Companies like Rockwell Automation(NYSE:ROK), Coca-Cola (NYSE:KO) and AI startups like SymphonyAI, Moveworks and Perplexity are customers. Additionally, Microsoft is integrating AI in Power Platform, Dynamics 365, GitHub and other products with organizations using these AI-powered tools in sales, marketing, supply chains and finance.
Microsoft is realizing the benefits of its AI-driven transformation. As more organizations subscribe to services like Azure AI, Azure OpenAI, and various Microsoft co-pilots, the firm will build a stable revenue base from AI.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
