Wall Street rally, which started in the last week of August, faded in the last five trading sessions owing to uncertainty over an interim trade deal between the United States and China, global economic slowdown, political issues like the initiation of an impeachment process against President Donald Trump by the Democrats.
As the stock market volatility continues, the Dow 30 Index –- popularly known as the stock market’s blue-chip index –- is showing fluctuations. However, a closer look into the index reveals a different picture. Some members with a favorable Zacks Rank provide strong growth potential. Consequently, it will be a good idea to add these stocks to your portfolio at the moment.
Dow Still in the Green Despite Fluctuations
Just like Wall Street, the Dow is feeling the weight of intensifying trade conflict between the United States and China this month. The index is showing regular fluctuations for two weeks.
The blue-chip index lost 1.1% in last five trading days. On Sep 24, the index lost 141.81 points or 0.5%. However, the index is currently less than 2.1% below the all-time closing high of 27,359.16 that it set on Jul 15, 2019.
On Sep 24, the Dow closed at 26,806.18 well above its 50-day and 200-day moving averages of 26,600.35 and 25,770.79, respectively. In financial literature, the 50-day moving average line is generally recognized as the short-term trend setter, while the 200-day moving average is considered as long-term trend setter.
It is widely recognized in the technical analysis space that whenever the 50-day moving average line surges ahead of the 200-day moving average line, a long-term uptrend for the index becomes a strong possibility.
Despite severe market volatility, the Dow is still in positive territory with a gain of 14.9% year to date. This is an excellent performance after a disappointing 2018 in which the blue-chip index lost nearly 6%. Moreover, 19 components of the 30-stock index have given double-digit returns so far this year.
Near-Term Catalysts for the Dow
A fundamentally stable U.S. economy, which is growing for the historically longest 11 years, albeit with some loss in pace and a dovish monetary stance adopted by the Fed in 2019 are the two major drivers of the Dow. Furthermore, the government bonds yield curve has steadied in September after staying inverted for a large part of August. This has eliminated the fear of an impending recession.
U.S. consumer spending remained strong and the labor market remained firm with steady wage growth. Of let, several economic data have indicated a slow turnaround in U.S. manufacturing, which was hit hard due to the lingering tariff war with China.
Meanwhile, Fed has reiterated several times that it will whatever is necessary to support U.S. economic expansion. Already the central bank has reduced the benchmark interest rate by 50 basis points in two traches after 11 long years. Boyed by Fed’s assurance, market participants are expecting at least one more rate cut of 25 basis points within this year.
Our Top Picks
At this stage, it will be prudent to invest in Dow stocks with a favorable Zacks Rank and strong dividend yield, which will act as a regular income stream to investors. Therefore, these stocks will likely benefit from both market rally and attractive dividend. We have narrowed down our search to five such stocks, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows price performance of our five picks year to date.
The Procter & Gamble Co. PG provides branded consumer packaged goods to consumers in North and Latin America, Europe, the Asia Pacific, Greater China, India, the Middle East and Africa. It operates in five segments: Beauty, Grooming, Health Care, Fabric & Home Care, and Baby, Feminine & Family Care.
The Procter & Gamble focuses on improving its product portfolio through strategic initiatives, which enable it to concentrate on its fast-growing businesses. For this, the company relies on its strategy of acquiring complementary businesses. The company also follows a systematic divestiture plan to streamline its portfolio.
The company has expected earnings of 7.1% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.1% over the last 60 days. The stock has a dividend yield of 2.4% and has jumped 34.4% year to date.
Visa Inc. V operates as a payments technology company worldwide. It facilitates commerce through the transfer of value and information among consumers, merchants, financial institutions, businesses, strategic partners and government entities.
The company’s upside was primarily driven by an increase in all the components of net revenues such as service, data processing, international transaction revenues and others. For Visa, mergers and acquisitions, partnerships and minority investments are some of the ways to achieve growth. These moves have helped the company to remain the leader in the global payment network space.
The company has expected earnings of 17.1% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.6% over the last 60 days. The stock has a dividend yield of 0.6% and has jumped 32.2% year to date.
United Technologies Corp. UTX provides high-technology systems and services to the building and aerospace industries. The operations of the company are primarily classified into two principal businesses: Commercial and Aerospace.
United Technologies intends to become more competent on the back of meaningful business acquisitions. In this context, the acquisition of Rockwell Collins is worth mentioning. The buyout has not only strengthened its existing product portfolio, but also aided in launching innovative solutions for aerospace customers.
The company has expected earnings of 5.5% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.4% over the last 60 days. The stock has a dividend yield of 2.2% and has soared 27.2% year to date.
Walmart Inc. WMT operates retail stores, restaurants, discount stores, supermarkets, supercenters, hypermarkets, warehouse clubs, apparel stores, Sam’s Clubs, and NeighborhoodMarkets, as well as the websites -- walmart.com and samsclub.com.
Walmart has been gaining from its sturdy comparable store sales (comps) record, which in turn is driven by its constant expansion efforts and stellar e-commerce performance. The company is trying every means to evolve with the changing consumer environment to compete with brick-and-mortar rivals and e-commerce behemoths.
Although the company’s expected earnings growth is 0% for the current year, next year’s earnings growth has improved to 4.2%. Notably, the Zacks Consensus Estimate for the current year has improved by 1.4% over the last 60 days. The stock has a dividend yield of 1.8% and has soared 27.1% year to date.
Merck & Co. Inc. MRK is a global research-driven pharmaceutical products company. It offers therapeutic and preventive agents to treat cardiovascular, type 2 diabetes, chronic hepatitis C virus, HIV-1 infection, intra-abdominal, fungal infection, insomnia and inflammatory diseases.
Merck has many pipeline candidates in advanced stages of development targeting multiple disease areas such as oncology, cardiovascular diseases, diabetes, infectious diseases, neurosciences, respiratory and immunology diseases and vaccines. Strength in cancer drug, Keytruda, and Gardasil vaccine as well as a strong performance in international markets, especially China, drove the company’s second-quarter results.
The company has expected earnings of 13.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 3.8% over the last 60 days. The stock has a dividend yield of 2.6% and has gained 9.4% year to date.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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