The Five Best Dow Jones Stocks to Buy Now in 2018

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The Five Best Dow Jones Stocks to Buy NowMany of the talking heads and pundits are hating on the Dow 30 and are decrying them as overvalued and having weak growth prospects. You shouldn't pay attention to the noise though. The Dow Jones Industrial Average (DJIA) is still a great place to find solid stocks with sizable dividends. The thirty stocks that make up the Dow Jones are leaders in their own industries and have significant competitive moats, large cash flow and major profits.

When buying Dow Jones stocks, you are really buying the 30-largest players in the American economy. There's a reason that nearly $24 billion dollars has been invested in the Dow Jones Industrial Average ETF (DIA). The index remains a strong collection of blue-chip stocks that pay solid dividends and aren't going anywhere anytime soon.

Sure, there are a few "Dogs of the Dow" that you might want to avoid. General Electric (NYSE:GE) recently cut its dividend and is in desperate need of a turnaround to remain relevant. Intel has also recently come out of favor after it was discovered that there are major security vulnerabilities in all of its modern processors. You might want to avoid those two specific stocks, but there are many solid companies in the Dow worth looking at.

Here are the five best Dow Jones stocks to buy this year.

#1 - Caterpillar, Inc. (NYSE:CAT)

Caterpillar logoA few years ago, Caterpillar (NYSE:CAT) had been set aside as a company whose best days were behind it. Investors looked at declining global growth and saw weaker demand for bulldozers, backhoes and other heavy construction equipment for years to come. They couldn't look past slowing demand in China and other developing countries and thought Caterpillar's sales would suffer for many years.

Global growth has now turned along and Caterpillar's fortunes have turned around with it. The global economic is now growing quickly and spending has increased dramatically in major construction projects. Higher prices in precious metals and basic materials have also pushed mines to expand causing increased demand for mining equipment such as backhoes and dump trucks made by Caterpillar.

As the leading provider of these machines, Caterpillar's fortunes have returned and its share price has almost tripled over the last year. Caterpillar saw significant earnings growth in 2017 over 2016 and its 2018 numbers look to surpass those of 2017. Analysts are forecasting the company will post earnings per share of $7.73 in 2018, well above their earnings of $5.55 per share between Q4 2016 and Q3 2017. 

Global growth shows no near-term signs of slowing down, which will continue to push Caterpillar's revenue, earnings and dividend payment upward. Without a doubt, Caterpillar is one of the best Dow Jones stocks to own this year.

About Caterpillar
Caterpillar Inc. is a manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The Company operates through segments, including Construction Industries, which is engaged in supporting customers using machinery in infrastructure, forestry and building construction; Resource Industries, which is engaged in supporting customers using machinery in mining, quarry, waste and material handling applications; Energy & Transportation, which supports customers in oil and gas, power generation, marine, rail and industrial applications, including Cat machines; Financial Products segment, which provides financing and related services, and All Other operating segments, which includes activities, such as product management and development, and manufacturing of filters and fluids, undercarriage, tires and rims, ground engaging tools, fluid transfer products, and sealing and connecting components for Cat products.

Current Price: $157.99
Consensus Rating: Buy
Ratings Breakdown: 13 Buy Ratings, 7 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $167.85 (6.2% Upside)

#2 - Wal-Mart (NYSE:WMT)

Wal-Mart Stores logoIf you paid attention to the talking heads on CNBC, it would be easy to think that nobody shops in actual stores anymore and that everyone buys everything on Amazon. However, the death of retail has been greatly overstated. Wal-Mart (NYSE:WMT) just had its best year since the early dot-com days and more growth could be in store for this Dow Jones mainstay. 

Wal-Mart doesn't quite meet Amazon's online sales, but it's e-commerce efforts are nothing to pass over. Wal-Mart has gone all-in on e-commerce to keep up with up with online shopping trends. The company recently purchased Jet.com and a number of other smaller shopping sites. It has added more online shopping and pick-up options and increased the number of SKUs for sale on Walmart.com. These efforts are working and online sales metrics are steadily improving for Wal-Mart.

Wal-Mart also just announced a new scan and go smartphone app that will allow customers to skip checkout lines entirely. Customers can simply pay for their items on their phone before they leave without ever having to deal with a cashier or one of their automated checkout systems. This move will allow Wal-Mart to reduce its labor costs even further, expand their margins further and cut costs for consumers.

Some still think Wal-Mart is a stumbling retail giant unprepared for the e-commerce revolution, but Wal-Mart's recent retail efforts prove that is anything but the case. Wal-Mart is arguably the best retailer on the Dow 30.

About Wal-Mart Stores
Wal-Mart Stores, Inc. is engaged in the operation of retail, wholesale and other units in various formats around the world. The Company operates through three segments: Walmart U.S., Walmart International and Sam's Club. The Walmart U.S. segment includes its mass merchant concept in the United States operating under the Walmart or Wal-Mart brands, as well as digital retail. The Walmart International segment consists of the Company's operations outside of the United States, including various retail Websites. The Walmart International segment includes various formats divided into three categories: retail, wholesale and other. These categories consist of various formats, including supercenters, supermarkets, and warehouse clubs, such as Sam's Clubs, cash and carry, home improvement, specialty electronics, apparel stores, drug stores and convenience stores, as well as digital retail. The Sam's Club segment includes the warehouse membership clubs in the United States, and samsclub.com.

Current Price: $95.24
Consensus Rating: Hold
Ratings Breakdown: 14 Buy Ratings, 15 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $99.72 (4.7% Upside)

#3 - Pfizer (NYSE:PFE)

Pfizer logoIf anyone stands to benefit from the recently-passed tax reform bill, It's Pfizer (NYSE: PFE). The company has struggled to stay competitive due to its high tax rate and massive overseas cash pile. The company even attempted to buy AstraZeneca (AZN) and Allergan (AGN) in order to be able to move its headquarters to Europe and lower its corporate tax rate. Regulators shut down both deals before Pfizer could execute on them.

Pfizer has $160 billion in profit sitting overseas. Before the tax bill, it would have had to pay 35% tax if it wanted to bring that money back to the United States. Now, it can pay just 14% on those taxes thanks to the Tax Reform Act. As Pfizer sees a major influx of capital, it's likely to increase M&A activity, pay a higher dividend and buyback shares of its own stock. 

The company has already boosted its dividend by 6% to 34 cents per share and has announced that it will be buying back $10 billion of its own shares since the tax reform bill passed. This is on top of a previously-announced $6.4 billion buyback plan.

Pfizer could easily be one of the best Dow Jones stocks to hold in the new year as these spending programs begin to take shape.

About Pfizer
Pfizer Inc. (Pfizer) is a research-based global biopharmaceutical company. The Company is engaged in the discovery, development and manufacture of healthcare products. Its global portfolio includes medicines and vaccines, as well as consumer healthcare products. The Company manages its commercial operations through two business segments: Pfizer Innovative Health (IH) and Pfizer Essential Health (EH). IH focuses on developing and commercializing medicines and vaccines, as well as products for consumer healthcare. IH therapeutic areas include internal medicine, vaccines, oncology, inflammation and immunology, rare diseases and consumer healthcare. EH includes legacy brands, branded generics, generic sterile injectable products, biosimilars and infusion systems. EH also includes a research and development (R&D) organization, as well as its contract manufacturing business. Its brands include Prevnar 13, Xeljanz, Eliquis, Lipitor, Celebrex, Pristiq and Viagra.

Current Price: $36.16
Consensus Rating: Hold
Ratings Breakdown: 8 Buy Ratings, 9 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $39.29 (8.7% Upside)

#4 - McDonalds (NYSE:MCD)

McDonald's logoMcDonald's has finally got its groove back in the last year. It was one of the best performing Dow Jones stocks in 2017 thanks to menu simplification efforts, the launch of all-day breakfast and working to speed up its drive-through lines. 

The company also recently announced that it's going to bring back its Dollar Menu, with items listed at $1.00, $2.00 and $3.00. For example, the McChicken will be available for $1.00 in many markets and a new Bacon McDouble will be available for $2.00. 

While higher-end fast food chains like Five Guys and Culvers are doing well hitting the upscale market, McDonald's is refocusing on its core price-conscious consumer again. For people that want to spend $1.00 or $2.00 on a burger, McDonald's is the place to be. These cheaply-priced food items might not have the greatest market share, but the company is more focused on market share and overall revenue. 

McDonald's is also launching more stores with kiosks and smartphone-based ordering to shorten lines and get consumers their food faster. By automating the ordering process, each store could have one fewer cashier saving on labor costs and improving margins.

About McDonald's
McDonald's Corporation (McDonald's) operates and franchises McDonald's restaurants. The Company's restaurants serve a locally relevant menu of food and drinks sold at various price points in over 100 countries. The Company's segments include U.S., International Lead Markets, High Growth Markets, and Foundational Markets and Corporate. The U.S. segment focuses on offering a platform for authentic ingredients that allows customers to customize their sandwiches. Its High Growth Markets segment includes its operations in markets, such as China, Italy, Korea, Poland, Russia, Spain, Switzerland, the Netherlands and related markets. The International Lead markets segment includes the Company's operations in various markets, such as Australia, Canada, France, Germany, the United Kingdom and related markets. The Foundational markets and Corporate segment is engaged in operating restaurants and increasing convenience to customers, including through drive-thru and delivery.

Current Price: $157.32
Consensus Rating: Buy
Ratings Breakdown: 24 Buy Ratings, 6 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $186.04 (18.3% Upside)

#5 - Nike (NYSE:NKE)

Nike logoWhen you are running the single most dominant and iconic brand in your market, you have to be doing something right. Despite increased competition from Under Armour, Adidas and other players, Nike continues to throw off cash for investors quarter after quarter and year after year. 

Nike has recently made a major initiative in e-commerce and is working to bring its products directly to the consumer. This will help strengthen the relationship between the company and its customers and will help grow its margins by sidestepping retailers. Its focus on e-commerce will also help drive sales beyond its core athletic gear market and help them pick up more market share in the casual wear market. 

With steadily improving financials and 21 equities research analysts giving the company a "buy" rating, it's possible that Nike shares will appreciate greatly in 2018 thanks to improved direct sales and increased investor interest. 

About Nike
NIKE, Inc. is engaged in the design, development, marketing and selling of athletic footwear, apparel, equipment, accessories and services. The Company's operating segments include North America, Western Europe, Central & Eastern Europe, Greater China, Japan and Emerging Markets. Its portfolio brands include the NIKE Brand, Jordan Brand, Hurley and Converse. As of May 31, 2016, the Company focused its NIKE brand product offerings in nine categories: Running, NIKE Basketball, the Jordan Brand, Football (Soccer), Men's Training, Women's Training, Action Sports, Sportswear (its sports-inspired lifestyle products) and Golf. Men's Training includes its baseball and American football product offerings. It also markets products designed for kids, as well as for other athletic and recreational uses, such as cricket, lacrosse, tennis, volleyball, wrestling, walking and outdoor activities. The Company sells a range of performance equipment and accessories under the NIKE Brand name.

Current Price: $67.51
Consensus Rating: Buy
Ratings Breakdown: 22 Buy Ratings, 15 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $65.16 (-3.5% Upside)







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