The Dow Jones Industrial Average can be a great place to look if you’re a beginner investor looking for some solid blue-chip ideas to put new money to work. Though the Dow Jones index may get quite a bit of flack for being a sub-par representation of the overall U.S. market, I still think the small sample size (30 components) makes it a bite-sized way for market newcomers to discover relatively secure stocks they’d be willing to hang onto for the long haul. This has led to this list of dow stocks to buy.
Though chasing Dow Jones laggards or leaders in any given year isn’t going to guarantee solid returns (or even market returns), I still think the Dow Jones members are worth watching as they look to prove they’re still worthy of staying in the incredibly old basket of large-cap American plays, many of whom have made big dents in their industries! Let’s check out three intriguing (perhaps overlooked) Dow stocks on my radar this February.
Cisco (CSCO)
Cisco (NASDAQ:CSCO) disappointed many when it clocked in its latest quarterly earnings (Q2 2024) on Wednesday, with shares slipping just shy of 6% on what was a glorious comeback day for the broader markets.
Alongside the unimpressive quarter, the firm announced it’s trimming its workforce by 5%, or just over 4,000. That’s a massive layoff, to say the least, following up on big cuts made by other tech companies racing to reduce their workforces.
The tough times in tech are almost palpable at this point as the layoff contagion continues spreading through the industry at large. With revenue down 6% year over year, questions linger as to how the networking equipment maker can get back on the high track. With shares ultimately going nowhere over the past year, the patience of investors is sure to be put to the test as Cisco sails into its next round of earnings (Q3).
For now, massive job cuts, an ugly technical chart, and cautious full-year guidance are not helping build investor confidence in the old-time tech firm. In any case, the 3.1% dividend yield and freshly lowered bar make the Dow component worth a second look. Shares already look quite cheap at around 12.8 times forward price-to-earnings. And they could get much cheaper as investors digest the recent negative headlines. All in all, its one of those dow stocks to buy.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) is one of the bluest blue chips to play the rise of generative artificial intelligence (generative AI). With deep pockets, a stake (and tight-knit partnership) with Sam Altman’s OpenAI, and an ever-improving Copilot AI service, your search for AI gems could easily stop at Microsoft.
Although Microsoft has a lot going for it, some concerns could fuel the bear case over the coming quarters. First; the multiple is extended with shares going for 36.8 times trailing price-to-earnings at the time of writing. Some degree of premium is deserved for the $3 trillion AI frontrunner.
The company has talked a good talk. Now, it needs to walk a good walk. Though Copilot is an impressive AI service, questions linger as to its stickiness. Will customers continue to pay for the service, or will they just switch to one of the growing number of alternatives in the chatbot scene?
Second, Microsoft’s decision to launch first-party Xbox games on PlayStation could be a net negative for Xbox sales. Either way, it seems Microsoft is headed to the cloud with its console.
Finally, let’s not forget that a Russia-led group hacked Microsoft earlier this year — a potential stain on the company’s cybersecurity business.
Despite the concerns, I still think the Dow stock is a staple in any portfolio. In fact, it’s a must-hold of the mega-cap tech plays, in my opinion. It’s the biggest AI innovator on the planet. I just wish shares were a bit cheaper!
IBM (IBM)
IBM (NYSE:IBM) is a tech company that was out of the conversation just a few years ago when almost nobody knew about OpenAI, ChatGPT, and the AI boom to come. Nowadays, the long-time Dow laggard is finally showing it can make up for lost time, thanks in part to the AI trend. Over the past year, shares are up around 35%. That’s a big deal for a perennial underperformer who’s struggled to stay with the other heavyweights in the tech world.
With Watson AI and various other AI initiatives working their magic, IBM is a tech stock that has finally shown it deserves your full attention. As AI helps improve IBM’s quarterly results, don’t be so surprised if IBM joins the conversation alongside the Magnificent Seven and other impressive AI tech players in the near future.
With a 22.5 times trailing price-to-earnings multiple and a nice 3.62% dividend yield, I still find the stock to be misunderstood by many. For 2024, look for more AI strength to make the previously-forgotten tech stock an unforgettable member of the Dow.
On the date of publication, Joey Frenette owned shares of Microsoft. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
