Finding the best Dow stocks to buy can be complex.
The companies listed in the Dow Jones Industrial Average tend to be blue-chip stocks that have large market capitalizations and are dominant in their sectors of the economy.
For this reason, investors often see the Dow as bellwether for the health of the U.S. economy, making the best Dow stocks to buy worth seeking out. This year, the Dow has trailed the other main U.S. stock indexes in terms of performance.
While the tech-laden Nasdaq index has gained 33% year to date and the benchmark S&P 500 has risen 17%, the Dow Jones Industrial Average has only increased 4% since the first trading day in January.
This means that bargains can still be found among Dow stocks. While the sprint in technology stocks has left many names red faced and gasping for air, there remain many great stocks listed on the Dow that are undervalued at current levels.
Here are the seven best Dow stocks to buy now: September 2023.
Apple (AAPL)
Consumer electronics giant Apple (NASDAQ:AAPL) is getting dragged into global politics. News reports claim that China has ordered officials at all government agencies to stop using Apple iPhones for work.
The ban on iPhones among government workers comes as political tensions escalate between the U.S. and China. The U.S. government earlier this year banned federal government workers from using Chinese smartphone maker Huawei Technologies products, as well as the short form video app TikTok that is owned by China’s ByteDance.
While China’s ban on iPhones may seem like political posturing, it is likely to have some impact on Apple.
China has nearly 40 million government workers and is one of the company’s biggest markets, generating nearly one-fifth (20%) of its annual revenue.
News of the China ban sent AAPL stock down more than 3%. Investors should see this as a buying opportunity, especially ahead of the upcoming launch of the new iPhone 15 and other devices from Apple. Year to date, AAPL stock is up 46% and is perennially one of the best Dow stocks to buy.
Coca-Cola (KO)
Shares of Coca-Cola (NYSE:KO) have also dipped lately, falling below the key threshold of $60 a share and bringing the beverage giant’s decline on the year to 7%.
This too is a buy-the-dip opportunity, especially given Coca-Cola’s long-term track record of returns to shareholders and a strong dividend that offers a yield of 3.13%.
What makes it among the best Dow stocks to buy is that the company continues to boost its dividend payment by about 5.5% each year. The median price target on KO stock among 20 analysts who cover the company is 20% higher than current levels.
Trading at 24 times forward earnings is also reasonable for Coca-Cola’s shares. Especially considering that the company continues to issue strong financial results, is raising prices, and is seeing demand hold-up despite the broader economy starting to slow.
Coca-Cola’s Q2 results were impressive, with the company beating analysts’ forecasts on both the top and bottom lines and raising its guidance for the rest of this year. KO stock remains a reliable blue-chip name for investors to buy on the downswing.
Johnson & Johnson (JNJ)
Interesting things are happening at Johnson & Johnson (NYSE:JNJ).
The healthcare company reported better-than-expected Q2 earnings and raised its full-year guidance. Sales in its MedTech business unit surged in the April through June period.
The company said it is also seeing a rebound in non-urgent surgeries among older adults who had deferred procedures during the pandemic.
Johnson & Johnson is now forecasting full-year revenue of $98.8 billion to $99.8 billion, which is about $1 billion higher than its previous outlook, making it one of the best Dow stocks to buy for the long term.
Johnson & Johnson has spun-off its consumer health business into a separate publicly traded company called Kenvue (NYSE:KVUE). The spin-off was a success and led Johnson & Johnson to further revise up its earnings guidance for the remainder of this year.
Separating the consumer health unit that includes products such as Visine eye drops and Tylenol pain medicine has been praised by analysts who see it as giving Johnson & Johnson the opportunity to focus on its pharmaceutical products.
JNJ stock has is down 11% on the year.
McDonald’s (MCD)
No matter what happens with interest rates and the economy in coming months, it’s a safe bet that we’ll all still be eating at McDonald’s (NYSE:MCD).
A best-in-class blue-chip name, McDonald’s is the type of set it and forget it stock that can help investors sleep soundly at night. That’s because McDonald’s burgers, fries and drinks sell well in any environment.
Even during the pandemic, the Golden Arches didn’t miss a beat as they switched all their orders to the drive-thru counter.
MCD stock is only up 4% this year and looks like a great opportunity for long-term investors. The current price-earnings ratio of 25 is low by historic standards and the quarterly dividend payment of $1.52 a share, for a yield of 2.21%, is strong.
Despite the tepid share price gains this year, MCD stock is still up 70% over five years and proven long-term winner. The company’s most recent earnings print was typically great, with McDonald’s reporting global same-store sales growth of 11.7%.
Microsoft (MSFT)
Investors on the hunt for an artificial intelligence stock that hasn’t already tripled this year should consider Microsoft (NASDAQ:MSFT).
Shares of the leading technology company are up 38% this year, trailing most other big cap tech stocks and well behind the 230% gain in the stock of AI microchip leader Nvidia (NASDAQ:NVDA).
Yet Microsoft is more exposed to AI than most companies with its $10 billion investment in privately held OpenAI, the company behind ChatGPT.
In fact, Microsoft has already integrated ChatGPT and its successor, GPT-4, into its Bing search engine, giving it a leg up on its competitors. MSFT stock has been trading sideways since the company issued mixed Q2 results that left investors feeling deflated.
The pending regulatory approval of the company’s $68 billion acquisition of leading video game maker Activision Blizzard (NASDAQ:ATVI) is also weighing on the share price. But long-term, Microsoft has many things working in its favor.
Eventually, markets will catch-up, but right now MSFT is one of the best Dow stocks to buy on the dip.
Nike (NKE)
Shares of Nike (NYSE:NKE) have to turnaround at some point, right? There is a clear buying opportunity here with NKE stock down 15% on the year and currently trading at $100 a share.
The sneaker and apparel maker’s stock has been sliding lower due to a combination of problems that have included soft sales in China, production problems elsewhere in Asia, and excess inventories, all of which have led to poor financial results that have left Wall Street unimpressed.
NKE stock really hit the skids after the company reported earnings that included its first profit miss in three years. The company also announced lower profit margins and stagnant inventories.
Forward guidance too underwhelmed, with Nike saying it now expects revenue to grow by mid-single digits for this fiscal year. Analysts had expected year-over-year revenue growth of 6.3%.
Perhaps most importantly, Nike said that its inventory value came in at $8.5 billion at the end of its latest quarter, which was flat compared with the previous year.
While things have been bad with Nike, there is hope that the share price has now bottomed and will rise as the company gets its mojo back in the coming quarters.
Visa (V)
It’s been tough sledding for credit card companies coming out of the pandemic. But there’s hope that a turnaround might be underway at the major issuers, including Visa (NYSE:V).
Visa says that it is seeing consumer spending hold up this year. In its most recent print, Visa reported earnings of $4.2 billion on $8.1 billion of revenue, giving the company an impressive profit margin of 52%.
As we move to a cashless society, credit card use is on the rise in the U.S. and elsewhere in the world.
Visa and other credit card companies are also seeing spending increase on travel and dining out in the pandemic’s wake. Visa has posted double-digit year-over-year revenue growth for nearly 15 consecutive years.
The only year that the company posted a sales decline was in 2020 when Covid-19 struck. Visa is also increasing the amount of money it makes from value-added services such as fraud prevention and data analytics, and is even pushing into cryptocurrencies. V stock is up nearly 20% this year and has increased 72% over five years.
On the date of publication, Joel Baglole held long positions in AAPL and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.