Wall Street is reeling under volatility in 2022. Market participants are highly concerned that a more hawkish Fed and a prolonged war between Russia and Ukraine, which has resulted in higher commodity prices, may curtail U.S. GDP growth in first-quarter 2022. The U.S. inflation rate is currently at a 40-year high.
As the Fed is likely to adopt a more hawkish stance and a higher interest rate regime is likely to continue in 2022, it will be prudent to invest in blue-chip stocks with a favorable Zacks Rank. These stocks have a robust business model, globally acclaimed brand recognition and a strong financial position. Five of them are —
Apple Inc. ( AAPL Quick Quote AAPL - Free Report) , Caterpillar Inc. ( CAT Quick Quote CAT - Free Report) , The Travelers Companies Inc. ( TRV Quick Quote TRV - Free Report) , Visa Inc. ( V Quick Quote V - Free Report) and Dow Inc. ( DOW Quick Quote DOW - Free Report) . The Dow Index in 2022
Year to date, the Dow — popularly known as the blue-chip index — is down 4.7%. However, the other two major indexes — the S&P 500 and the Nasdaq Composite — have dropped 5.1% and 9.2%, respectively. The small-cap-centric benchmark — Russell 2000 — has tumbled 8.9% so far in 2022. Despite the recent meltdown, the Dow is currently trading at 34,641.18, above its 50-day moving average of 34,351.88. The 50-day moving average provides short-term support.
Solid U.S. Economy to Drive Stock Markets
In 2022, the biggest drivers of the U.S. stock markets should be the nation’s strong economic fundamentals. The labor market has returned to the pre-pandemic level. Aggregate demand remained strong despite skyrocketing inflation.
Moreover, the U.S. economy will get more upside from the government’s infrastructure spending. On Nov 15, President Joe Biden signed a bipartisan infrastructure bill of $550 billion in addition to the previously approved funds of $450 billion for five years. Total spending may go up to $1.2 trillion if the plan is extended to eight years.
The infrastructure development project will be a key catalyst for the U.S. stock markets in 2022. Various segments of the economy such as basic materials, industrials, utilities and telecommunications should benefit immensely for more job creation.
Additionally, the White House put pressure on Congress to quickly pass a legislation providing $52 billion to help computer chip manufacturers and ease the shortage of the components vital to many industries.
Our Top Picks
We have narrowed our search to five Dow stocks with strong potential for the near term. These stocks have seen solid earnings estimate revisions in the last 60 days. Moreover, these companies are regular dividend payers, which will act as an income stream in the market’s downtrend. 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
The chart below shows the price performance of our five picks in the past three months.
Image Source: Zacks Investment Research Apple is benefiting from the continued momentum in the Services and a robust performance by iPhone, iPad, Mac, Wearables and an expanding App Store ecosystem. Although Apple’s business primarily runs around its flagship iPhone, the Services portfolio has emerged as the company’s new cash cow. AAPL currently has more than 745 million paid subscribers across its Services portfolio.
Apple encourages developers to use artificial intelligence and machine learning in their apps. The company’s Core ML 2 API helps developers recognize faces or animals in photos, and parse the meaning of the text. AAPL’s focus on autonomous vehicles and augmented reality/virtual reality technologies presents growth opportunities for the long haul.
Apple has an expected earnings growth rate of 9.8% for the current year (ending September 2022). The Zacks Consensus Estimate for the current year has improved 0.2% over the last 60 days. Zacks Rank #2 AAPL has a current dividend yield of 0.5%.
Caterpillar had a strong backlog of $23 billion at the end of 2021. This will drive CAT’s top line in the upcoming quarters. Improving demand in several of Caterpillar’s end markets and savings from its restructuring actions might negate the impact of high material and labor costs and supply chain headwinds.
The Construction Industries segment will benefit from strength in residential construction and non-residential construction in the United States, and rising demand in other parts of the world. Demand from mining backed by higher commodity prices will aid the Resource Industries segment. A robust liquidity position and investments in expanding services and digital initiatives sholuld drive growth of CAT as well.
Caterpillar has an expected earnings growth rate of 13% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.1% over the last 30 days. Zacks Rank #2 CAT has a current dividend yield of 2%.
Visa has undertaken mergers and acquisitions, partnerships, and minority investments to achieve growth. V’s investments in technology are solidifying its position in the payments market. A shift in payments to the digital mode is a boon for Visa.
The coronavirus vaccine rollouts and the gradual revival of consumer confidence should keep driving spending, expanding business volumes in turn. Backed by its strong cash position, Visa remains committed to boosting its shareholder value. V’s balance sheet strength is commendable.
Visa has an expected earnings growth rate of 20.6% for the current year (ending September 2022). The Zacks Consensus Estimate for current-year earnings improved 0.1% over the last 30 days. Currently, V carries a Zacks Rank #2 and has a dividend yield of 0.7%.
The Travelers Companies boasts a strong market presence in auto, homeowners’ insurance, and commercial U.S. property-casualty insurance with solid inorganic growth. A high retention rate, increase in new business and positive renewal premium change bode well. TRV’s commercial businesses should perform well, owing to market stability.
The Travelers Companies remains optimistic about the personal line of business, given growth at the profitable agency auto and homeowners business. TRV expects net investment income from non-fixed income portfolio to be $430 million to $440 million quarterly in 2022. Sufficient capital boosts shareholder value.
The Zacks Consensus Estimate for current-year earnings improved 0.3% over the last 7 days. Zacks Rank #2 The Travelers Companies has a current dividend yield of 1.9%.
Dow should gain from cost synergy savings and productivity initiatives. Dow is focused on maintaining cost and operational discipline through cost synergy and stranded cost-removal initiatives. Actions to reduce operating costs are expected to support DOW earnings in 2022.
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 expanding downstream silicones capacity.
The Zacks Consensus Estimate for current-year earnings improved 4% over the last 30 days. Dow sports a Zacks Rank #1 Dow with a current dividend yield of 4.4%.