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5 Blue-Chip Stock to Buy as Dow Crosses a Fresh Milestone
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Wall Street is having an impressive bull run in 2021 with just eight weeks of trading left. The three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — recorded new all-time highs in each of the last three trading days. This has happened for the first time since December 2019.
Meanwhile, on Nov 1, the Dow touched a key milestone of 36,000 for the first time. On Nov 2, the blue-chip index closed above 36,000 for the first time. The momentum is likely to continue in the near future as the market is likely to see a year-end rally buoyed by the upcoming holiday sales season, which is expected to beat expectations.
Encouraging Dow Rally in 2021
In 2020, the Dow had gained 7.3% compared with the S&P 500 and the Nasdaq Composites rallies of 16.3% and 43.6%, respectively. However, in 2021, market participants’ preferences have shifted from overvalued growth-oriented technology stocks to relatively undervalued cyclical stocks.
As the composition of the Dow leans toward cyclical stocks, the index gained momentum in 2021. Year to date, the Dow, the S&P 500 and the Nasdaq Composite — have rallied 17.8%, 23.3% and 21.4%, respectively.
At its current level of 36,052.63, the Dow is well above its 50-day and 200-day moving averages of 34,945.59 and 33,836.45, respectively. The 50-day moving average line is generally recognized as the short-term trendsetter in financial literature, while the 200-day moving average is considered a 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.
Near-Term Catalysts
First, market valuation has already discounted the likelihood of the Fed starting to taper its monthly bond-buy program this year. The current projection by the CME FedWatch shows a 7% probability that the central bank will hike the benchmark interest rate in early 2022. The Fed has maintained that a rate hike is unlikely before the second half of 2022.
Second, on Nov 2, the initial estimation of the Atlanta Fed was that the U.S. economy will grow 8.1% in fourth-quarter 2021 after rising 2% in the third quarter. On Oct 29, the initial estimate for fourth-quarter GDP was 6.6%.
The U.S. GDP grew 6.4% and 6.7%, in the first and second quarter of this year, respectively. Moreover, robust U.S. corporate earnings in the first, second and third quarters bolstered market participants’ confidence in U.S. equities.
Third, a strong reduction in the news cases of the Delta variant will pave the way for robust holiday sales. On Oct 28, the FDA approved the COVID-19 vaccine developed by Pfizer Inc. (PFE - Free Report) and BioNTech SE (BNTX - Free Report) for children of age 5 to 11. More than 28 million U.S. kids will now get the vaccine.
Holiday retail sales are likely to climb this year as projected by various major market researchers like Deloitte, Mastercard SpendingPulse, Bain and KPMG. Notably, consumer spending accounts for nearly 70% of U.S. GDP.
Fourth, on Oct 28, President Joe Biden announced that he reached a deal with Senate Democrats on the outlines of a $1.75 trillion social spending and climate bill. He appealed to House Democrats to vote for the stalled $1 trillion infrastructure bill that already passed the Senate.
Fifth, U.S. consumers have regained confidence in the economy. The Conference Board reported that the U.S. consumer confidence index climbed to 113.8 in October from 109.8 in September, beating the consensus estimate of 107.5. The index rebounded after three consecutive months of decline.
More importantly, the expectations sub-index (consumers’ outlook for income, business, and labor market conditions for the next 6 months) improved to 91.3 in October from 86.7 in September.
Our Top Picks
We have narrowed down our search to five Dow stocks with strong growth potential for the ensuing quarter. All these stocks witnessed robust earnings estimate revisions in the last 7 to 30 days, indicating solid business prospects. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
he chart below shows the price performance of our five picks in the past month.
Image Source: Zacks Investment Research
Chevron Corp. (CVX - Free Report) is one of the best-placed global integrated oil firms to achieve a sustainable production ramp-up. Its existing project pipeline is one of the best in the industry, thanks to its premier position in the lucrative Permian Basin.
Chevron’s Noble Energy takeover has expanded its footprint in the region and the DJ Basin. The company now has access to Noble Energy’s low-cost, proven reserves along with cash-generating offshore assets in Israel – particularly the flagship Leviathan natural gas project — thereby boosting its footing in the Mediterranean.
This Zacks Rank #1 company has an expected earnings growth rate of more than 100% for the quarter ending December 2021. The Zacks Consensus Estimate for current-quarter earnings improved 2% over the last 7 days.
Microsoft Corp. (MSFT - Free Report) is introducing new and improved Surface devices that could encourage enterprises to stick with Windows as they move toward BYOD and cloud computing. Microsoft’s advantages in this respect are two-fold.
First, the company has a huge installed base of Office users. Most legacy data are based on Office, so enterprises are usually reluctant to use other productivity solutions. Second, the BYOD model is dependent on security and cloud integration, both of which are Microsoft’s strengths.
This Zacks Rank #2 company has an expected earnings growth rate of 12.3% for the quarter ending December 2021. The Zacks Consensus Estimate for current-quarter earnings improved 4.1% over the last 7 days.
Dow Inc. (DOW - Free Report) should gain from cost synergy savings and productivity initiatives. The company is focused on maintaining cost and operational discipline through cost synergy and stranded cost-removal initiatives. Its actions to reduce operating costs are expected to lend support to its earnings in 2021.
Dow’s restructuring program is also expected to deliver margin benefits. Investment in high-return projects should also be accretive to its earnings. Management is investing in several high-return growth projects including the expansion of downstream silicones capacity.
This Zacks Rank #1 company has an expected earnings growth rate of more than 100% for the quarter ending December 2021. The Zacks Consensus Estimate for current-quarter earnings improved 12% over the last 30 days.
McDonald's Corp. (MCD - Free Report) has been making every effort to drive growth in the international markets. McDonald’s is the world’s largest chain of fast-food restaurants in more than 100 countries. Its offerings have reached the billion-dollar brand status through sustained product innovation and geographic expansion.
With an almost 10% share of the global informal-eating-out market, there is ample scope for it to grow in the future as it boasts a scale advantage compared to its peers. Growing guest count remains the company’s top priority and it intends to regain customers by focusing on food quality, convenience and value. Moreover, McDonald’s expects its velocity accelerators of Experience of the Future, digital and delivery to drive growth over the long term.
This Zacks Rank #2 company has an expected earnings growth rate of 35.9% for the quarter ending December 2021. The Zacks Consensus Estimate for current-quarter earnings improved 3.6% over the last 7 days.
The Home Depot Inc. (HD - Free Report) is witnessing significant benefits from the execution of the “One Home Depot” investment plan, which focuses on expanding supply chain facilities, technology investments and enhancement to the digital experience.
Amid the pandemic, customers have been increasingly blending the physical and digital elements of the shopping experience, making the interconnected One Home Depot strategy most relevant. The company is effectively adapting to the demand for renovations and construction activities, driven by prudent investments. It is gaining from growth in Pro and DIY customer categories as well as digital momentum.
This Zacks Rank #2 company has an expected earnings growth rate of 3.7% for the quarter ending January 2022. The Zacks Consensus Estimate for current-quarter earnings improved 0.7% over the last 30 days.
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5 Blue-Chip Stock to Buy as Dow Crosses a Fresh Milestone
Wall Street is having an impressive bull run in 2021 with just eight weeks of trading left. The three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — recorded new all-time highs in each of the last three trading days. This has happened for the first time since December 2019.
Meanwhile, on Nov 1, the Dow touched a key milestone of 36,000 for the first time. On Nov 2, the blue-chip index closed above 36,000 for the first time. The momentum is likely to continue in the near future as the market is likely to see a year-end rally buoyed by the upcoming holiday sales season, which is expected to beat expectations.
Encouraging Dow Rally in 2021
In 2020, the Dow had gained 7.3% compared with the S&P 500 and the Nasdaq Composites rallies of 16.3% and 43.6%, respectively. However, in 2021, market participants’ preferences have shifted from overvalued growth-oriented technology stocks to relatively undervalued cyclical stocks.
As the composition of the Dow leans toward cyclical stocks, the index gained momentum in 2021. Year to date, the Dow, the S&P 500 and the Nasdaq Composite — have rallied 17.8%, 23.3% and 21.4%, respectively.
At its current level of 36,052.63, the Dow is well above its 50-day and 200-day moving averages of 34,945.59 and 33,836.45, respectively. The 50-day moving average line is generally recognized as the short-term trendsetter in financial literature, while the 200-day moving average is considered a 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.
Near-Term Catalysts
First, market valuation has already discounted the likelihood of the Fed starting to taper its monthly bond-buy program this year. The current projection by the CME FedWatch shows a 7% probability that the central bank will hike the benchmark interest rate in early 2022. The Fed has maintained that a rate hike is unlikely before the second half of 2022.
Second, on Nov 2, the initial estimation of the Atlanta Fed was that the U.S. economy will grow 8.1% in fourth-quarter 2021 after rising 2% in the third quarter. On Oct 29, the initial estimate for fourth-quarter GDP was 6.6%.
The U.S. GDP grew 6.4% and 6.7%, in the first and second quarter of this year, respectively. Moreover, robust U.S. corporate earnings in the first, second and third quarters bolstered market participants’ confidence in U.S. equities.
Third, a strong reduction in the news cases of the Delta variant will pave the way for robust holiday sales. On Oct 28, the FDA approved the COVID-19 vaccine developed by Pfizer Inc. (PFE - Free Report) and BioNTech SE (BNTX - Free Report) for children of age 5 to 11. More than 28 million U.S. kids will now get the vaccine.
Holiday retail sales are likely to climb this year as projected by various major market researchers like Deloitte, Mastercard SpendingPulse, Bain and KPMG. Notably, consumer spending accounts for nearly 70% of U.S. GDP.
Fourth, on Oct 28, President Joe Biden announced that he reached a deal with Senate Democrats on the outlines of a $1.75 trillion social spending and climate bill. He appealed to House Democrats to vote for the stalled $1 trillion infrastructure bill that already passed the Senate.
Fifth, U.S. consumers have regained confidence in the economy. The Conference Board reported that the U.S. consumer confidence index climbed to 113.8 in October from 109.8 in September, beating the consensus estimate of 107.5. The index rebounded after three consecutive months of decline.
More importantly, the expectations sub-index (consumers’ outlook for income, business, and labor market conditions for the next 6 months) improved to 91.3 in October from 86.7 in September.
Our Top Picks
We have narrowed down our search to five Dow stocks with strong growth potential for the ensuing quarter. All these stocks witnessed robust earnings estimate revisions in the last 7 to 30 days, indicating solid business prospects. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
he chart below shows the price performance of our five picks in the past month.
Chevron Corp. (CVX - Free Report) is one of the best-placed global integrated oil firms to achieve a sustainable production ramp-up. Its existing project pipeline is one of the best in the industry, thanks to its premier position in the lucrative Permian Basin.
Chevron’s Noble Energy takeover has expanded its footprint in the region and the DJ Basin. The company now has access to Noble Energy’s low-cost, proven reserves along with cash-generating offshore assets in Israel – particularly the flagship Leviathan natural gas project — thereby boosting its footing in the Mediterranean.
This Zacks Rank #1 company has an expected earnings growth rate of more than 100% for the quarter ending December 2021. The Zacks Consensus Estimate for current-quarter earnings improved 2% over the last 7 days.
Microsoft Corp. (MSFT - Free Report) is introducing new and improved Surface devices that could encourage enterprises to stick with Windows as they move toward BYOD and cloud computing. Microsoft’s advantages in this respect are two-fold.
First, the company has a huge installed base of Office users. Most legacy data are based on Office, so enterprises are usually reluctant to use other productivity solutions. Second, the BYOD model is dependent on security and cloud integration, both of which are Microsoft’s strengths.
This Zacks Rank #2 company has an expected earnings growth rate of 12.3% for the quarter ending December 2021. The Zacks Consensus Estimate for current-quarter earnings improved 4.1% over the last 7 days.
Dow Inc. (DOW - Free Report) should gain from cost synergy savings and productivity initiatives. The company is focused on maintaining cost and operational discipline through cost synergy and stranded cost-removal initiatives. Its actions to reduce operating costs are expected to lend support to its earnings in 2021.
Dow’s restructuring program is also expected to deliver margin benefits. Investment in high-return projects should also be accretive to its earnings. Management is investing in several high-return growth projects including the expansion of downstream silicones capacity.
This Zacks Rank #1 company has an expected earnings growth rate of more than 100% for the quarter ending December 2021. The Zacks Consensus Estimate for current-quarter earnings improved 12% over the last 30 days.
McDonald's Corp. (MCD - Free Report) has been making every effort to drive growth in the international markets. McDonald’s is the world’s largest chain of fast-food restaurants in more than 100 countries. Its offerings have reached the billion-dollar brand status through sustained product innovation and geographic expansion.
With an almost 10% share of the global informal-eating-out market, there is ample scope for it to grow in the future as it boasts a scale advantage compared to its peers. Growing guest count remains the company’s top priority and it intends to regain customers by focusing on food quality, convenience and value. Moreover, McDonald’s expects its velocity accelerators of Experience of the Future, digital and delivery to drive growth over the long term.
This Zacks Rank #2 company has an expected earnings growth rate of 35.9% for the quarter ending December 2021. The Zacks Consensus Estimate for current-quarter earnings improved 3.6% over the last 7 days.
The Home Depot Inc. (HD - Free Report) is witnessing significant benefits from the execution of the “One Home Depot” investment plan, which focuses on expanding supply chain facilities, technology investments and enhancement to the digital experience.
Amid the pandemic, customers have been increasingly blending the physical and digital elements of the shopping experience, making the interconnected One Home Depot strategy most relevant. The company is effectively adapting to the demand for renovations and construction activities, driven by prudent investments. It is gaining from growth in Pro and DIY customer categories as well as digital momentum.
This Zacks Rank #2 company has an expected earnings growth rate of 3.7% for the quarter ending January 2022. The Zacks Consensus Estimate for current-quarter earnings improved 0.7% over the last 30 days.