5 Dow Jones stocks to buy and hold forever

Sep 18, 2020 03:05 AM ET
5 Dow Jones stocks to buy and hold forever

The Dow Jones Industrial Average (DJIA) is one of the three-biggest indices in the United States. The index, which was developed more than 135 years ago, has returned more than 28,000% in its lifetime. Today, its constituent companies have a market cap of more than $8 trillion and include some of the most iconic American brands like Apple, Coca-Cola, and Microsoft.

Dow Jones historic performance

Dow Jones historic performance

While the Dow Jones is an iconic index, its performance in the past decade has lagged that of the S&P 500 and Nasdaq 100, as shown below. Therefore, some investors prefer investing in individual components of the index. In this report, we will look at the best 5 Dow Jones companies to invest in for long-term investors.

Dow Jones has lagged the S&P 500 and Nasdaq 100 in the past decade

Dow Jones has lagged the S&P 500 and Nasdaq 100 in the past decade

Microsoft (MSFT)

Microsoft is the second-biggest company in the United States. Under Satya Nadella, the company has moved from a mass software seller to the biggest software-as-a-service (SAAS) company. It is also the second-biggest and fastest-growing cloud computing company in the world. The firm has a market cap of more than $1.5 trillion, annual revenue of more than $143 billion, and an annual income of more than $44 billion.

There are other key reasons why you should consider Microsoft as a key Dow Jones firm to invest in. First, it operates in industries with unlimited total addressable market. For example, according to Gartner, the worldwide public cloud service is expected to generate more than $331 billion in 2022 up from $214 billion in 2019. As the second-biggest and fastest-growing provider of these services, Microsoft will benefit from this transition.

Second, Microsoft offers a generous dividend that is backed by a strong payout ratio. As such, you will benefit from both its revenue growth and steady dividend income. Third, Microsoft has a strong balance sheet, with more than $136 billion in cash and short-term investments. This cash is enough to cover the firm’s $60 billion of long-term debt.

Microsoft stock has outperformed the Dow in the past decade

Microsoft stock has outperformed the Dow in the past decade

Apple (AAPL)

Apple is the biggest company in the United States, with a market cap of more than $2 trillion. The company has an annual revenue of more than $260 billion in annual revenue and a net profit of more than $55 billion. Apple is also a beloved brand that is known for some of the most premium consumer products like the iPhone, iMac, and iPad.

For years, the iPhone was the biggest money-maker for Apple, accounting for more than 50% of its total revenue. In recent years, the smartphone industry has gotten saturated, leading to a slowdown in iPhones revenue. To deal with this, Apple has decided to increase its focus on the high-margin service industry. This includes services like Apple Card, Apple Pay, Apple Music, Apple News, and Appstore, among others.

In the second quarter of 2020, the company announced that it had grown the number of people paying for its services to more than 550 million. It is targeting the number will reach 660 million by the end of the year. That makes Apple the biggest subscription-based company in the world.

In addition to the growth of the service, other reasons to invest in Apple are its strong balance sheet, strong moat in its business, and its strong cash flow.

Apple stock has risen by 1,600%+ in the past decade

Apple stock has risen by 1,600%+ in the past decade

Walmart (WMT)

Walmart is the biggest retailer in the US with annual revenue of more than $523 billion and a net income of more than $14 billion. The firm has a market cap of more than $387 billion and a dividend yield of about 1.50%.

Walmart is a beloved retailer, known for its low prices and its close proximity to America’s households. It became a Dow Jones constituent in 1997.

There are several reasons why Walmart is a good Dow Jones company to invest in. First, it has a strong moat in its industry. While retail is a highly competitive industry, Walmart has a strong reputation that is hard for any company to imitate.

Second, the company is the only major competitor to Amazon, the biggest e-commerce firm in the US. In the second quarter of 2020, the firm’s e-commerce division grew by more than 97%, which is evidence that its strategy is working. And, the company is planning to unveil its Prime product, which will help it lock-up millions of customers. Finally, Walmart is relatively undervalued, trading at a 21x multiple, which is lower than the Dow Jones multiple of 27x.

Walmart has underperformed the Dow in the past decade

Walmart has underperformed the Dow in the past decade

Salesforce (CRM)

Salesforce, the latest Dow Jones company, is a must-buy company for long-term investors. The company has grown from a small start-up to one of the biggest software-as-a-service brands in the world. The firm offers a diverse portfolio of products that help companies market, analyse, and communicate with their customers. As of this writing, it has a market cap of more than $221 billion and annual revenue of more than $17 billion.

There are several reasons why Salesforce is a good investment. First, it serves millions of companies using a subscription model. That means that it has limited churn and its business is easy to forecast. Second, the firm has a strong moat in most industries it operates in as shown in the magic quadrant shown below.

Salesforce has the biggest market share in CRM

Salesforce has the biggest market share in CRM

Third, Salesforce is growing fast in other industries it operates in. For example, by acquiring Tableau Software, the company became the second-biggest firm in business intelligence.

Salesforce is the second-biggest firm in business intelligence

Salesforce is the second-biggest firm in business intelligence

In addition, Salesforce businesses are growing, it has excellent free cash flow, and a strong balance sheet.

Salesforce has outperformed the Dow Jones

Salesforce has outperformed the Dow Jones

Nike (NIKE)

Nike is an excellent Dow Jones stock to invest in. It has a market cap of more than $184 billion, annual revenue of more than $37 billion, and a net income of more than $4 billion. The company is the biggest and best-known brand in sportswear in the world. Its closest competitor is Adidas, which has an annual revenue of more than $26 billion. The company joined the Dow in 2004.

There are several reasons why you should consider investing in Nike. First, the firm has long-term relationships with most sporting teams in the United States. This helps ensure consistent income. Second, it has a strong brand that is difficult to replicate. Third, because of the coronavirus, its stock has become relatively undervalued. Finally, Nike has a strong global business with higher operating margins than its peers.

Nike has outperformed the Dow Jones

Nike has outperformed the Dow Jones

Final thoughts

Judging by history, you cannot go wrong by investing in the Dow Jones. That is because the index has a consistent 135-year track record of returning money to shareholders. While it is recommended to own part of the index, you can also consider investing in some of the constituent companies directly. We believe that the five companies we mentioned will continue growing and outperforming the index.


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