NOTthe following month, the emblematic Dow Jones Industrial Average (DJINDICES: ^DJI) will celebrate its 126th “birthday”. Since its beginnings in May 1896, the Dow Jones evolved from a 12-stock index that was mostly dominated by industrial companies to a 30-component index filled with a diverse group of profitable and proven companies.
Although we often think of the constituents of the Dow Jones as slower growing, mature companies, these companies can still pack a punch and make patient investors much richer. As we move forward into April, three Dow stocks stand out as glaring buys.
The first component of the Dow Jones Industrial Average just waiting to be bought is semiconductor pivot Intel (NASDAQ: INTC).
The two big knocks against Intel right now are that global supply chain issues are limiting its growth potential and that Advanced micro-systems gained market share in areas where Intel previously dominated. The good news here is that supply chain issues are a relatively short-term problem that doesn’t affect demand, and there’s more than enough avenue for Intel and AMD to coexist and thrive in the segments. legacy and higher growth opportunities.
To start with the basics, Intel is a highly cyclical company, meaning it does well when the US and global economy is expanding and struggles when growth slows or contracts. Although recessions are an inevitable part of the business cycle, there is a key difference between recessions and economic expansions. While recessions are usually measured in months or quarters, periods of expansion usually last for many years. Patient investors buying Intel stock should benefit from increased demand for chips over time as the domestic and global economy develops.
Another reason to love Intel here is the incredible cash flow channeled from the company’s legacy segments into higher growth initiatives. Last year, the Client Computing Group and Data Center Group generated more than $66 billion in annual revenue. Although growth in these segments tends to be modest, Intel’s high margins and large share of the personal computing market continue to generate abundant cash flow.
Meanwhile, in 2021, Intel reported $4 billion in annual sales from its Internet of Things group, a 33% improvement over the previous year. It also saw sales of self-driving vehicle company Mobileye, which makes driver assistance technology chips for next-generation vehicles, jump 43% year-on-year to 1.4 billion. of dollars. Mobileye recently announced its intention to go public via an initial public offering.
Long story short, while Intel’s growth may seem pedestrian now, the company is investing in all the right places and generating plenty of cash flow to capitalize on endless bull markets. A year-ahead price-to-earnings ratio of 13, based on Wall Street’s consensus earnings forecast for 2023, is a boon for a company that generated $30 billion in operating cash flow the year last.
Another Dow stock that is a screaming buy in April is the payment processor Visa (NYSE:V).
Like almost all financial stocks, Visa is a cyclical business. This means that, like Intel, Visa will come and go with the US and global economy. If aggressive action by the Federal Reserve sends the United States into a recession, consumers and businesses will likely spend less, hurting short-term sales and Visa’s profit potential.
But there are other points to connect here. As I noted earlier, periods of expansion are considerably longer than contractions, which should allow Visa to participate in the natural expansion of the US and global economy over time. Also, inflation can be positive for Visa. As consumers and businesses spend more on the same amount of goods and services, Visa’s payment-based operating model should see a surge in revenue and profit.
Investors should also not overlook Visa’s pole position in the world’s most lucrative consumer market: the United States. Since 2018, Visa controlled 53% of the credit card network’s purchase volume in the United States, which was more than 30 percentage points above its nearest competitor. Additionally, its share of credit card network payment volume has grown faster than any other payment processor since the end of the Great Recession.
Another interesting thing is that Visa Strictly sticks to payment processing and does not lend money to consumers or businesses. Although periods of economic expansion can last a long time, loans would potentially expose Visa to default. As it does not lend, Visa is not required to set aside capital to cover loan losses. This loan avoidance is precisely why his profit margin is typically over 50%.
Opportunistic investors can buy Visa shares now for about 27 times Wall Street’s consensus earnings for the coming year. By comparison, Visa has averaged a price-to-earnings ratio of nearly 38 over the past five years. With sustainable double-digit growth potential, Visa looks a lot like.
Walgreens Boot Alliance
The third Dow stock that looks like a screaming buy in April is the drugstore chain Walgreens Boot Alliance (NASDAQ: WBA).
Last week, Walgreens announced its fiscal second quarter operating results, which were less than enthusiastically received by Wall Street. Walgreens’ results indicated slower growth following an initial wave of foot traffic related to COVID-19 vaccinations, as the company met its fiscal 2022 guidance of “low single digits.” . [earnings] growth.” While slow growth is never ideal, far more important is that the business the multipoint strategy remains intact.
For example, Walgreens’ multipoint growth strategy initially targeted $2 billion in annual savings by the end of the current fiscal year. However, the company announced in October that it had achieved more than $2 billion in annual cost reductions a full year ahead of schedule. This cost reduction should help alleviate any pressure on margins in the short term.
But as Walgreens executives restricted spending in some areas, they were press the accelerator in others. For example, no expense has been spared when it comes to the company’s digitization efforts. While its brick-and-mortar locations will continue to generate the lion’s share of its sales, bolstering its online store and pickup options should boost the company’s organic growth rate.
For a Walgreens Boots Alliance shareholder, the the most exciting aspect of the company’s strategy is its partnership and majority investment in VillageMD. Both companies operate full-service physician-staffed clinics in Walgreens stores. More than 100 of these clinics are already open, and the goal is to have at least 600 in more than 30 U.S. markets by the end of 2025. Their ability to handle more than vaccines and the common cold should encourage repeat visits to these clinics and help stimulate demand.
Among the 30 components of the Dow, it can be said that Walgreens Boots Alliance is the most important share value out of the pack at less than nine times Wall Street’s forecast earnings for fiscal 2022. Add in a 4.4% dividend yield and you have a lucrative recipe for patient investors.
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Sean Williams owns Walgreens Boots Alliance. The Motley Fool owns and recommends Advanced Micro Devices, Intel and Visa. The Motley Fool recommends the following options: $57.50 long calls on Intel in January 2023 and $57.50 short puts on Intel in January 2023. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.