On May 26, the iconic Dow Jones Industrial Average (DJINDICES: ^DJI) celebrated its 128th “birthday.” Since its introduction in 1896, it’s undergone more than four dozen changes and transformed from a 12-stock index packed with industrial businesses to one that’s now represented by 30 time-tested, diverse, multinational companies.
In mid-May, the Dow Jones made history by closing above 40,000 for the first time in its storied history. Although some investors might be apprehensive about putting their money to work on Wall Street with an ageless index like the Dow currently near its all-time high, value can always be found for investors with a long-term mindset.
What follows are three Dow stocks that stand out as no-brainer buys as we push forward into June.
Intel
The first Dow component that makes for a screaming buy right now is none other than semiconductor goliath Intel (NASDAQ: INTC).
I’d be lying if I told you Intel hasn’t faced a multitude of headwinds in recent years. It’s been losing central processing unit (CPU) share to Advanced Micro Devices, has seen personal computer (PC) demand fall off in a big way in the wake of the COVID-19 pandemic, and is having its bottom line weighed down by losses tied to its Foundry Services segment, which it’s building from the ground up. But in spite of these challenges, the risk-versus-reward scenario has decidedly tipped in favor of patient optimists.
The first thing to note about Intel is that its foundational CPU segments remain cash cows. Even with AMD chipping away at its CPU share, Intel remains the undisputed market share leader in PCs and traditional data centers. The predictable operating cash flow Intel is generating from its Client Computing and Data Center segments will allow the company to redirect this capital toward higher-growth initiatives.
One of Intel’s more exciting ventures is the broad launch of its Gaudi 3 chip during the third quarter. Gaudi 3 is its artificial intelligence (AI)-accelerator chip designed to go toe-to-toe with Nvidia‘s dominant H100 graphics processing unit (GPU) in high-compute data centers. With GPU demand swamping supply, new entrants like Gaudi 3 should enjoy exceptionally strong demand.
Looking a bit further out, Intel has charted a path to become the world’s No. 2 foundry-services provider by the turn of the decade. Intel is building two chip fabrication plants in Ohio, and should open another in Germany later this decade, which is being partially subsidized by the German government.
The final piece of the puzzle for Intel is that its valuation is incredibly attractive. Although its forward price-to-earnings (P/E) ratio of 16 might not sound all that special, Wall Street’s consensus calls for Intel to effectively triple its earnings per share (EPS) to north of $3 by 2027.
Johnson & Johnson
A second Dow 30 constituent that makes for a no-brainer buy in June is healthcare conglomerate Johnson & Johnson (NYSE: JNJ), which is better known as “J&J.”
J&J has badly lagged in the current bull market, with pending litigation likely being the reason it’s underperforming. There are approximately 100,000 lawsuits outstanding that allege J&J’s now-discontinued baby powder causes cancer. Johnson & Johnson’s two previous efforts to settle these lawsuits were tossed in court. Wall Street doesn’t like unpredictability — and there’s no telling when this litigation will be resolved.
On the other hand, J&J is one of only two publicly traded companies (Microsoft being the other) that’s been anointed with Standard & Poor’s (S&P) highest credit rating (AAA). S&P has the utmost confidence that J&J’s cash-rich balance sheet and abundant operating cash flow can help it service its debt with ease, as well as deal with any outstanding litigation.
What’s made Johnson & Johnson such a consistent grower over the last decade is its renewed focus on pharmaceuticals. Even though brand-name therapies only have a finite period of sales exclusivity, novel drugs deliver juicy margins and exceptional pricing power. Devoting capital to internal drug development and collaborations, and constantly refreshing its pipeline, has helped J&J’s pharmaceutical segment avoid the perils of patent expirations.
Additionally, Johnson & Johnson benefits from continuity in key leadership positions. For instance, you’ll only need the fingers on your two hands to count the number of CEOs J&J has had since its founding in 1886. Less turnover at the top leads to important growth initiatives being seen through from start to finish.
To round things out, Johnson & Johnson stock is at its cheapest valuation, relative to forward earnings, in at least a decade. Shares can be scooped up by long-term investors right now for close to 13 times forward EPS, which represents a 16% discount to its average forward earnings multiple over the last five years.
Salesforce
The third Dow Jones Industrial Average stock that makes for a no-brainer buy in June is cloud-based customer relationship management (CRM) software provider Salesforce (NYSE: CRM). CRM software helps consumer-facing businesses enhance existing customer relationships and bolster sales.
May was an eventful month for Salesforce, and not in a good way. The CRM software provider’s sales guidance missed the mark, based on Wall Street’s consensus, for the first time 18 years! The company’s Chief Operating Officer Brian Millham attributed this rare revenue miss to longer deal cycles in the latest quarter.
While disappointing Wall Street when the stock market is historically pricey is never a good thing, there are couple of reasons to believe that this near-term discount is quite the bargain for patient investors.
To start with the obvious, demand for CRM software solutions is slated to grow by double digits. Fortune Business Insights estimates a 12% compound annual growth rate through the end of the decade, with the global CRM market reaching $157.5 billion in annual sales. Salesforce has been the undisputed top dog in global CRM market share over the last 11 years. Based on a report by IDC, the 21.7% share Salesforce held in 2023 was more than three times greater than the No. 2 player, Microsoft (5.9% share).
Salesforce also has a knack for making bolt-on acquisitions. Some of the top deals that co-founder and CEO Marc Benioff has helped engineer are the purchases of MuleSoft, Tableau Software, and Slack Technologies. Aside from adding new sales channels, these bolt-on acquisitions broaden the company’s service ecosystem and provide lucrative cross-selling opportunities.
Don’t overlook the company’s capital-return program, either. In late February, Salesforce upped its share repurchase program by $10 billion and announced its first-ever dividend of $0.40 per quarter. For companies with steady or growing net income, buybacks can be especially helpful in lifting EPS.
Following its May swoon, shares of Salesforce are now trading at 21 times forward-year consensus earnings. This works out to a 47% discount to its average forward-year earnings multiple over the last five years. Even with a modestly reduced sales growth rate, shares of Salesforce look like a bargain for opportunistic investors.
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Sean Williams has positions in Intel. The Motley Fool has positions in and recommends Advanced Micro Devices, Microsoft, Nvidia, and Salesforce. The Motley Fool recommends Intel and Johnson & Johnson and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short August 2024 $35 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
3 Dow Stocks That Are No-Brainer Buys in June was originally published by The Motley Fool
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