The Dow Jones Industrial Average can be a great place to look if you’re a beginner investor looking for some solid blue-chip ideas to put new money to work. Despite criticism, the small sample size of 30 components makes it a bite-sized way for market newcomers to discover relatively secure stocks they’d be willing to hang onto for the long haul. In this article, we will explore three intriguing Dow stocks that are worth considering in February.
Cisco (CSCO)
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Cisco (NASDAQ:CSCO) disappointed many when it clocked in its latest quarterly earnings (Q2 2024) on Wednesday, with shares slipping just shy of 6% on what was a glorious comeback day for the broader markets.
Alongside the unimpressive quarter, the firm announced it’s trimming its workforce by 5%, or just over 4,000. That’s a massive layoff, to say the least, following up on big cuts made by other tech companies racing to reduce their workforces.
The tough times in tech are almost palpable at this point as the layoff contagion continues spreading through the industry at large. With revenue down 6% year over year, questions linger as to how the networking equipment maker can get back on the high track. With shares ultimately going nowhere over the past year, the patience of investors is sure to be put to the test as Cisco sails into its next round of earnings (Q3).
For now, massive job cuts, an ugly technical chart, and cautious full-year guidance are not helping build investor confidence in the old-time tech firm. In any case, the 3.1% dividend yield and freshly lowered bar make the Dow component worth a second look. Shares already look quite cheap at around 12.8 times forward price-to-earnings. And they could get much cheaper as investors digest the recent negative headlines. All in all, it’s one of those Dow stocks to buy.
Microsoft (MSFT)
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Microsoft (NASDAQ:MSFT) is one of the bluest blue chips to play the rise of generative artificial intelligence (generative AI). With deep pockets, a stake (and tight-knit partnership) with Sam Altman’s OpenAI, and an ever-improving Copilot AI service, your search for AI gems could easily stop at Microsoft.
Although Microsoft has a lot going for it, some concerns could fuel the bear case over the coming quarters. The multiple is extended with shares going for 36.8 times trailing price-to-earnings at the time of writing. Some degree of premium is deserved for the $3 trillion AI frontrunner.
The company has talked a good talk. Now, it needs to walk a good walk. Though Copilot is an impressive AI service, questions linger as to its stickiness. Will customers continue to pay for the service, or will they just switch to one of the growing number of alternatives in the chatbot scene?
Second, Microsoft’s decision to launch first-party Xbox games on PlayStation could be a net negative for Xbox sales. Either way, it seems Microsoft is headed to the cloud with its console.
Finally, let’s not forget that a Russia-led group hacked Microsoft earlier this year — a potential stain on the company’s cybersecurity business.
Despite the concerns, I still think the Dow stock is a staple in any portfolio. In fact, it’s a must-hold of the mega-cap tech plays, in my opinion. It’s the biggest AI innovator on the planet. I just wish shares were a bit cheaper!
IBM (IBM)
IBM Transforms With AI Boom
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IBM Rediscovery
IBM (NYSE:IBM) once evaded the spotlight as AI innovations like OpenAI and ChatGPT dominated the tech scene. However, the tables have turned for this seasoned tech company that once lagged behind. Over the past year, IBM’s shares have surged by approximately 35%, signaling a significant revival for a company that previously struggled to keep pace with its tech counterparts.
The AI Renaissance
With the implementation of Watson AI and various other AI initiatives, IBM has emerged as a formidable tech stock, finally commanding the attention it deserves. As AI continues to drive improvements in IBM’s quarterly performance, it wouldn’t be surprising to witness IBM’s reemergence alongside industry giants and other trailblazing AI-driven tech companies.
Investment Potential
Despite its 22.5 times trailing price-to-earnings multiple, and an appealing 3.62% dividend yield, IBM remains misjudged by many. Looking ahead to 2024, the projected continued strength in AI is expected to cement IBM’s position as an indelible member of the Dow, transforming it from a forgotten player to an eagerly anticipated contender.
On the date of publication, Joey Frenette owned shares of Microsoft. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
