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The Dow Jones Industrial Average is often a go-to destination for beginner investors seeking solid blue-chip companies. Despite drawing criticism for its limited composition, the 30-component index offers a manageable entry point for those seeking relatively stable stocks for long-term investment. This has led to a compelling list of dow stocks to buy.
While following Dow Jones underperformers or outperformers in a given year is no guarantee of solid returns, I believe Dow Jones members are worth monitoring as they strive to affirm their place in the elite realm of large-cap American companies, many of whom have significantly impacted their respective industries.
Cisco (CSCO)
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Cisco (NASDAQ:CSCO) disappointed many with its latest quarterly earnings (Q2 2024) released on Wednesday, causing shares to drop by nearly 6% on a day that saw significant market gains.
Accompanying the lackluster quarter, the company announced a 5% reduction in its workforce, surpassing 4,000 job cuts. This substantial layoff adds to the trend of large-scale job reductions in the tech industry. With a 6% year-over-year revenue decline, doubts loom over the networking equipment maker’s ability to regain momentum. Despite stagnant share performance over the past year, the company’s 3.1% dividend yield and reduced valuation make it a worthwhile consideration within the Dow components. At around 12.8 times forward price-to-earnings, the stock appears attractively priced and may become even more so as investors absorb recent negative developments.
Microsoft (MSFT)
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Microsoft (NASDAQ:MSFT) is a leading player in the development of generative artificial intelligence (generative AI). With substantial resources and a strategic partnership with Sam Altman’s OpenAI, as well as the continuously improving Copilot AI service, Microsoft stands out as a major force in the AI arena.
Despite its strong position, several concerns could fuel a bearish outlook over the upcoming quarters. With shares trading at 36.8 times trailing price-to-earnings, the company commands a significant premium as the $3 trillion AI frontrunner. While Copilot represents an impressive AI service, questions linger regarding its sustainability and customer retention in the face of growing alternatives in the chatbot sector. Additionally, Microsoft’s decision to release first-party Xbox games on PlayStation could impact Xbox sales, hinting at a potential shift towards the cloud for the company’s console.
Furthermore, a Microsoft cybersecurity breach earlier this year involving a Russia-led group may tarnish the company’s cybersecurity business. In light of these concerns, Microsoft remains an essential holding for any portfolio, especially as the foremost AI innovator globally. However, lower stock prices would be preferable.
IBM (IBM)
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IBM (NYSE:IBM) was not a significant participant in discussions just a few years ago, when concepts like OpenAI, ChatGPT, and the impending AI boom were still relatively unknown. However, the long-time Dow underperformer has undergone a resurgence, primarily propelled by the AI trend. With its shares up approximately 35% over the past year, IBM has made significant strides, which is noteworthy for a company that has historically struggled to keep pace with other tech giants.
As IBM’s AI initiatives, including Watson AI, continue to contribute to its quarterly performance, it is likely to gain recognition alongside other prominent AI tech players in the near future. With a trailing price-to-earnings multiple of 22.5 and a respectable 3.62% dividend yield, the stock remains undervalued in my view. Anticipate further AI prowess in 2024, propelling the formerly overlooked tech stock into an indispensable Dow member.
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.
Joey Frenette is a seasoned investment writer specializing in technology and consumer stocks. Contributing to the Motley Fool Canada, TipRanks, and Barchart, Joey excels in spotting mispriced stocks with long-term growth potential in a fast-paced market.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
