In this article, we’ll take a look at Dow’s top 10 stocks to buy now, based on two important metrics. If you are eager to start investing right away, you can click to jump to the 5 best Dow shares to buy now.
The Dow Jones Industrial Average has been around for over 120 years and, for most of its existence, has been used as a benchmark for the overall health of the stock market. In addition, alongside the S&P 500, the Dow Jones is the most highly rated financial benchmark and is often used to describe the market, meaning that when some people report that the market is going up or down, they actually use Dow performance .
The reason it is so popular is that Dow was designed to be a benchmark. Charles Dow included 12 capitalized railway companies and two industrial companies in its first index in 1884. His plan was to define an index that would track the performance of the United States economy. Over time, Dow added more industrial inventories as the importance of the industrial sector increased. The first Dow Jones Industrial Average index was published in 1896 and included 12 industrial stocks. The 30-share version of the Index with which we are familiar was launched in 1928. Dow’s most enduring share was the General Electric Company (NYSE:GE), which was included in the original version of 12 shares until its removal in 2018.
Although it includes only 30 stocks, the Dow Jones Industrial Average remains one of the most referenced indices, as it includes some of the largest companies in the USA. However, it does not include giants like tech giants Amazon.com, Inc. (NASDAQ: AMZN) and Alphabet Inc (NASDAQ: GOOG) and will probably never include it. The reason for this is that the Dow Jones is a price-weighted index, so the higher a stock’s price, the more weight it has on the index’s performance. So currently, with Dow’s most expensive stock being UnitedHealth Group Inc (NYSE: UNH), which is valued at around $ 340, adding Amazon and Alphabet, which cost $ 3,200 and $ 1,700, would transform it in two-index of shares.
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In fact, of the top five stocks in terms of capitalization (more than $ 1.0 trillion), only two are included in the Dow. Furthermore, most of the largest companies that are not included in the Dow are giants in technology and the Internet, which actually reflects the change the United States economy has made since its early industrial days. So is it worth asking whether Dow is still the benchmark for the US economy or has it become obsolete?
It may not be a reflection of the American economy that has changed with technological advances, but Dow is far from obsolete. Although it is much smaller than its S&P 500 counterpart, Dow has been closely following the S&P 500, but it has been less volatile. In the past five years, the S&P 500 has returned about 81% and the Dow Jones Industrial Average has risen 74%.
So, should you consider investing in Dow shares? Certainly so, since Dow companies are carefully chosen and only companies with the most notable reputation and sound finances are included to be included in the index by a special committee. One approach to investing in Dow shares is to buy shares in an ETF such as the SPDR Dow Jones Industrial Average ETF Trust (NYSEARCA: DIA). However, we have a better idea. We selected a list of Dow’s top 10 shares to buy now, taking into account not only its performance in the past year, but also assessing its popularity among hedge funds. This metric, called the hedge fund sentiment, allows us to identify the stocks with the best performance in the long run.
Our research that covers the portfolios of more than 800 hedge funds has allowed us to identify a select group of shares that exceeded the S&P 500 ETF (SPY) by more than 78 percentage points since March 2017. We are sharing our choices in our quarterly and monthly newsletters, which you can read more about by visiting this link. Also, be sure to subscribe to our free newsletter on our homepage to receive our latest insights and news.
So with that in mind, let’s take a look at Dow’s top 10 stocks to buy now, based on their performance as well as their popularity among the hedge funds monitored by Insider Monkey.
10. Walmart Inc (NYSE: WMT)
Our list starts with Walmart Inc (NYSE: WMT) in 10th place. At the end of the third quarter, 69 funds in our database reported having $ 5.49 billion in shares, compared to 60 investors with $ 5.83 billion in shares three months earlier. Walmart shares have been a solid investment for decades and 2020 has also been a success for its shareholders so far.
Walmart has gained more than 20% since the beginning of the year, as the company registered substantial sales growth amid the pandemic and blockages that scared people to the point of stacking goods and increasing demand for certain products. Thus, for the quarters ended in April and July 2020, Walmart reported revenue growth of almost 9% and 6%, respectively, which is impressive considering that the highest growth in the previous 10 quarters had been 4.2 %. Another reason for the growth is Walmart’s growing online presence, which is also why we have included Walmart in our list of the top 5 retail stocks to buy now.
Major shareholders of Walmart Inc (NYSE: WMT) include Bill & Melinda Gates Foundation Trust, Ken Fisher’s Fisher Asset Management and Cliff Asness’s AQR Capital Management. In addition, it is worth mentioning that Bridgewater Associates of billionaire Ray Dalio added Walmart to its stock portfolio during the third quarter and is one of the top 10 investor holdings at the end of September.
9. Home Depot Inc (NYSE: HD)
Even after a drop of more than 30% in March, Home Depot Inc (NYSE: HD)The company’s shares have risen more than 22% since the beginning of the year. Home Depot recently acquired HD Supply, which was very well received by Street. Investors and analysts believe that the $ 8.7 billion acquisition (or rather, reinstatement, because HD Supply was part of Home Depot until it was sold in 2007) will expand Home Depot’s reach in the maintenance, repair and operations market. In addition, Home Depot stands to gain from the conclusions that are likely to come out of the pandemic and the trends for single-family homes that are likely to be defined. As more companies have expressed the possibility of making work from home a permanent option for their employees, it is expected that more people will choose single-family homes, as they offer more space and are, in general, the best option for families with children.
Home Depot Inc (NYSE: HD) saw 73 equity funds at the end of September, down 12 from the quarter. However, the aggregate value of the positions held by these funds increased from $ 4.64 billion to $ 4.96 billion. Fisher Asset Management, by billionaire Ken Fisher, holds the largest position in Home Depot at the end of September, reporting a $ 1.82 billion position in its latest 13F lawsuit.
8. Procter & Gamble Co (NYSE: PG)
With an annual return of 12.35%, Procter & Gamble Co (NYSE: PG) has one of the “worst” performances on this list. However, among investors accompanied by Insider Monkey, 75 funds reported having shares in Procter & Gamble Co (NYSE: PG) in the last round of 13F deposits, an increase of two over the quarter. In the last quarter (ended in September), Procter & Gamble Co (NYSE: PG) reported organic sales growth of 9%, which was more than double compared to the consensus estimate of 4%. Overall, PG posted revenue of $ 19.32 billion in the quarter, exceeding the consensus estimate by more than $ 900 million, and earnings per share of $ 1.63, better than expected $ 1.42. Recently, Wells Fargo analysts said Procter & Gamble Co (NYSE: PG) could be a neglected stock with many advantages due to the company’s effort to reorganize its portfolio and structure. Analysts also believe that in the next fiscal year, PG may report sales that would exceed estimates by $ 4.0 billion.
Andy Brown’s Cedar Rock Capital is the principal shareholder in Procter & Gamble Co (NYSE: PG) among the funds in our database. In its latest 13F lawsuit, it revealed a $ 1.53 billion position containing 11.03 million shares. Cedar Rock is followed by Trian Partners from Nelson Peltz and Peter Rathjens, Bruce Clarke and Arrowstreet Capital from John Campbell, with stakes of $ 1.41 billion and $ 1.19 billion, respectively.
7. Nike Inc (NYSE: NKE)
Inside Nike Inc (NYSE: NKE) there were 75 funds with $ 4.22 billion in shares at the end of September, compared with 71 investors with $ 2.60 billion in shares a quarter earlier. These investors include Fisher Asset Management, Melvin Capital Management by Gabriel Plotkin, Ako Capital by Nicolai Tangen and others.
Nike Inc (NYSE: NKE) shares have appreciated 39% since the beginning of the year, as the company first had a terrible quarter with significantly low sales due to the blockages, but then managed to recover. For the fourth fiscal quarter ended in May, Nike reported a 38% annual drop in revenue to $ 6.31 billion, which also lost expectations by $ 948 million. At the same time, the company posted a net loss of $ 0.51, significantly less than the expected earnings of $ 0.04 per share. However, in the following quarter, Nike recovered by delivering revenue of $ 10.59 billion, which was almost equal to the previous year’s figure, and which was $ 1.45 billion more than expected. In the last quarter, Nike posted revenue of $ 11.24 billion, up 9% for the year and $ 730 million above consensus.
6. UnitedHealth Group Inc (NYSE: UNH)
So there is UnitedHealthGroup Inc (NYSE: UNH), whose shares have appreciated 16.51% since the beginning of the year. The healthcare company recently announced a partnership with Eli Lilly And Co (NYSE: LLY) to conduct a pragmatic study of the pharmaceutical company’s bamlanivimab in high-risk patients infected with COVID-19. Bamlavimab is authorized for emergency use in patients with COVID-19 who are at risk of contracting a severe form of the virus. In the last quarter, UnitedHealthGroup Inc (NYSE: UNH) posted revenue of $ 65.11 billion, an increase of 7.89% and $ 1.15 billion more than expected, while its EPS of $ 3.51 exceeded estimates by $ 0.43. Overall, the company has reported solid revenue growth in recent years and has only missed quarterly estimates four times since 2015.
Although the number of funds with long positions at UnitedHealth Group Inc (NYSE: UNH) fell from seven to 89 during the third quarter, the total value of shares held by investors followed by us increased to $ 8.96 billion, from $ 8 , 33 billion. Among these funds, Stephen Mandel’s Lone Pine Capital and Boykin Curry’s Eagle Capital Management are the main shareholders of UnitedHealthGroup Inc (NYSE: UNH), owning 3.95 million and 3.54 million shares, respectively.
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Disclosure: None. Dow’s 10 best shares to buy now is originally published in Insider Monkey.
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