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The Five Best Dow Jones Stocks to Buy Now in 2020

The Five Best Dow Jones Stocks to Buy NowPosted on Tuesday, May 1st, 2018 by Matthew Paulson

Many 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. engages in the manufacture of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. It operates through the following segments: Construction Industries, Resource Industries, Energy and Transportation, Financial Products, and All Other. The Construction Industries segment supports customers using machinery in infrastructure and building construction applications. The Resource Industries segment is responsible for supporting customers using machinery in mining and quarrying applications and it includes business strategy, product design, product management and development, manufacturing, marketing and sales and product support. The Energy and Transportation segment supports customers in oil and gas, power generation, marine, rail, and industrial applications. The Financial Products segment offers a range of financing alternatives to customers and dealers for Caterpillar machinery and engines, solar gas turbines, as well as other equipment and marine vessels. The All Other segments include activities such as; the business strategy, product management and development, and manufacturing of filters and fluids, undercarriage, tires and rims, engaging tools, and fluid transfers. The company was founded on April 15, 1925 and is headquartered in Deerfield, IL.

Current Price: $140.38
Consensus Rating: Hold
Ratings Breakdown: 8 Buy Ratings, 9 Hold Ratings, 4 Sell Ratings.
Consensus Price Target: $147.69 (5.2% Upside)

#2 - Wal-Mart (NYSE:WMT)

Walmart 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 Walmart
Walmart Inc. engages in the retail and wholesale operations in various formats worldwide. The company operates through three segments: Walmart U.S., Walmart International, and Sam's Club. It operates supercenters, supermarkets, hypermarkets, warehouse clubs, cash and carry stores, discount stores, drugstores, and convenience stores; membership-only warehouse clubs; e-commerce Websites, such as walmart.com, jet.com, shoes.com, and samsclub.com; and mobile commerce applications. The company offers grocery products, including meat, produce, natural and organics, deli and bakery, dairy, frozen foods, alcoholic and nonalcoholic beverages, floral and dry grocery, as well as consumables, such as health and beauty aids, baby products, household chemicals, paper goods, and pet supplies; and health and wellness products. It also provides electronics, cameras and supplies, photo processing services, wireless, movies, music, video games, and books; stationery, automotive, hardware and paint, sporting goods, and outdoor living and horticulture; apparel for women, girls, men, boys, and infants, as well as shoes, jewelry, and accessories; and home furnishings, housewares and small appliances, bedding, home decor, toys, fabrics, crafts, and seasonal merchandise, as well as brand name merchandise. In addition, the company offers fuel and financial services and related products, including money orders, prepaid cards, wire and money transfers, check cashing, and bill payment. It operates approximately 11,300 stores and various e-commerce Websites under the 58 banners in 27 countries. The company was formerly known as Wal-Mart Stores, Inc. and changed its name to Walmart Inc. in February 2018. Walmart Inc. was founded in 1945 and is based in Bentonville, Arkansas.

Current Price: $114.37
Consensus Rating: Buy
Ratings Breakdown: 17 Buy Ratings, 11 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $123.45 (7.9% 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. discovers, develops, manufactures, and sells healthcare products worldwide. It offers medicines and vaccines in various therapeutic areas, including internal medicine, vaccines, oncology, inflammation and immunology, and rare diseases under the Lyrica, Chantix/Champix, Eliquis, Ibrance, Sutent, Xalkori, Inlyta, Xtandi, Enbrel, Xeljanz, Eucrisa, BeneFix, Genotropin, and Refacto AF/Xyntha brands. The company also provides consumer healthcare products that comprise over-the-counter medicines, including dietary supplement products under the Centrum, Caltrate, and Emergen-C names; pain management products under the Advil and ThermaCare names; gastrointestinal products under the Nexium 24HR/Nexium Control and Preparation H names; and respiratory and personal care products under the Robitussin, Advil Cold & Sinus, and ChapStick names. In addition, it offers products that would lose or have lost marketing patent protection; branded generic products; generic sterile injectable products; biosimilars; and anti-infectives under the Lipitor, Premarin family, Norvasc, Lyrica, Celebrex, Viagra, Inflectra/Remsima, Zyvox, Vfend, Revatio, Inspra, Medrol, Sulperazon, Fragmin, Tygacil, Nivestim, and Retacrit, Ixifi Infliximab BS names. Further, the company is also involved in the contract manufacturing business. It serves wholesalers, retailers, hospitals, clinics, government agencies, pharmacies, and individual provider offices, as well as disease control and prevention centers. The company has collaboration and/or co-promotion agreements with Bristol-Myers Squibb Company, Astellas Pharma US, Inc., and Merck KGaA; licensing agreement with BionTech AG; and collaboration agreements with Merck & Co., Inc. and Eli Lilly & Company, as well as with Merck KGaA and Nektar Therapeutics to develop a therapy for treating pancreatic cancer. Pfizer Inc. was founded in 1849 and is headquartered in New York, New York.

Current Price: $39.82
Consensus Rating: Hold
Ratings Breakdown: 4 Buy Ratings, 8 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $43.86 (10.1% Upside)

#4 - McDonalds (NYSE:MCD)

McdonaldMcDonald'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 operates and franchises McDonald's restaurants in the United States and internationally. Its restaurants offer various food products, soft drinks, coffee, and other beverages, as well as breakfast menu. As of December 31, 2018, the company operated 37,855 restaurants, including 35,085 franchised restaurants comprising 21,685 franchised to conventional franchisees, 7,225 licensed to developmental licensees, and 6,175 licensed to foreign affiliates; and 2,770 company-operated restaurants. McDonald's Corporation was founded in 1940 and is based in Chicago, Illinois.

Current Price: $211.24
Consensus Rating: Buy
Ratings Breakdown: 22 Buy Ratings, 6 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $224.12 (6.1% 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., together with its subsidiaries, designs, develops, markets, and sells athletic footwear, apparel, equipment, and accessories worldwide. The company offers NIKE brand products in six categories: running, NIKE basketball, the Jordan brand, football, training, and sportswear. It also markets products designed for kids, as well as for other athletic and recreational uses, such as American football, baseball, cricket, lacrosse, skateboarding, tennis, volleyball, wrestling, walking, and outdoor activities; and apparel with licensed college and professional team and league logos, as well as sells sports apparel. In addition, the company sells a line of performance equipment and accessories, including bags, socks, sport balls, eyewear, timepieces, digital devices, bats, gloves, protective equipment, and other equipment under the NIKE brand for sports activities; various plastic products to other manufacturers; athletic and casual footwear, apparel, and accessories under the Jumpman trademark; casual sneakers, apparel, and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron, and Jack Purcell trademarks; and action sports and youth lifestyle apparel and accessories under the Hurley trademark. Further, it licenses agreements that permit unaffiliated parties to manufacture and sell apparel, digital devices, and applications and other equipment for sports activities under NIKE-owned trademarks. NIKE, Inc. sells its products to footwear stores; sporting goods stores; athletic specialty stores; department stores; skate, tennis, and golf shops; and other retail accounts through NIKE-owned retail stores, digital platforms, independent distributors, licensees, and sales representatives. The company was formerly known as Blue Ribbon Sports, Inc. and changed its name to NIKE, Inc. in 1971. NIKE, Inc. was founded in 1964 and is headquartered in Beaverton, Oregon.

Current Price: $102.03
Consensus Rating: Buy
Ratings Breakdown: 25 Buy Ratings, 6 Hold Ratings, 3 Sell Ratings.
Consensus Price Target: $106.59 (4.5% Upside)

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