3 Outperforming Stocks in the Dow Jones with Buy Ratings

The Dow Jones Industrial Average (DJIA) is back on an upward trajectory thanks to the reopening of the economy. And because the Federal Reserve has hinted that it could tighten its monetary policy if the economy continues to show improvement, a concern over inflation is moderating. Considering this, we think outperforming DJIA stocks Cisco (CSCO), Caterpillar Inc. (CAT), and Dow Inc. (DOW) are uniquely positioned to deliver solid returns in the coming months. Let’s discuss.

The Dow Jones Industrial Average (DJIA) has gained 11.4% year-to-date because investors are growing increasingly confident that the nascent economic recovery is solid. In fact, the Federal Reserve officials said during their April meeting that they would  discuss tightening feds monetary policy if the economy continues to make rapid progress.

Also, the fed’s anticipation that inflation will ease as the year progresses is expected to be a major support for DJIA stocks.

As the economy continues to make significant progress, we believe that DJIA stocks Cisco Systems, Inc. (CSCO), Caterpillar Inc. (CAT) and Dow Inc. (DOW), which have outperformed the broader markets so far this year, will continue rallying. 

Cisco Systems, Inc. (CSCO)

CSCO is a manufacturer and seller of networking hardware, software, telecommunications equipment and other high-technology services and products. The company also offers collaboration products that comprise unified communications, Cisco TelePresence, conferencing, as well as the Internet of Things (IoT) and analytics software. It also has strategic alliances with Internet2 and Tele2 to deliver next-generation capabilities and software solutions.

Last month, CSCO entered a multi-year partnership with the National Football League (NFL) in which CSCO was named as its official technology partner. The collaboration should raise  CSCO’s market presence.

CSCO’s total revenue increased 6.8% year-over-year to $12.80 billion in the third quarter, ended May 1. Its gross margin grew 5.4% from its year-ago value to $8.19 billion, while its net income increased 3.2% year-over-year to $2.86 billion over this period. The company reported $0.68  EPS  for this period, compared to $0.65  EPS in the prior-year quarter.

A $13.02 billion consensus revenue estimate for the current quarter, ending June 2021, represents a 7.1% improvement year-over-year. The $0.82 consensus EPS estimate  for the current quarter represents a 2.5% increase from the same period last year. The stock has gained 18.1% year-to-date.

CSCO’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

CSCO is also rated an A in Quality, and a B in Stability. Within the B-rated Technology-Communication/Networking industry, it is ranked #12 of 55 stocks.

To see additional POWR Ratings for Sentiment, Value, Growth and Momentum for CSCO, Click here.

Caterpillar Inc. (CAT)

Formerly known as Caterpillar Tractor Co., CAT is the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. It operates principally  through three primary segments--Construction Industries, Resource Industries, and Energy & Transportation--and provides financing and related services through its Financial Products segment.

In February, CAT acquired the Oil & Gas Division of the Weir Group PLC, a Scotland-based global engineering business, and launched SPM oil and gas. It Intends to combine Weir Oil & Gas’ pressure pumping and pressure control portfolio with CAT’s engines and transmissions. Overall, the acquisition is consistent with CAT’s strategy of providing its  customers expanded offerings and services.

In the first quarter, ended March 31, CAT’s sales and revenue increased 12% year-over-year to $11.9 billion. Its operating profit grew 29.3% year-over-year to $1.81 billion, while its operating profit margin came in at 15.3%, compared to 13.2% in the first quarter of 2020. The company reported $1.53 billion in net profit, representing a 40.4% year-over-year increase over this period. Its EPS increased 39.9% year-over-year to $2.77.

Analysts expect CAT’s revenue for the current quarter, ending June 2021, to be $12.58 billion, representing 25.9% year-over-year growth. The company’s EPS is likely to increase 132% year-over-year to $2.39 for the current quarter. CAT has gained 29.1% year-to-date.

It is no surprise that CAT has an overall B grade, which equates to Buy in our proprietary ratings system. It has a B grade for Growth and Sentiment. O 86 stocks in the A-rated Industrial - Machinery industry, it is ranked #38.

In total, we rate CAT on eight different levels. Beyond what we’ve stated above, we have also given CAT grades for Momentum, Value, Quality and Stability. Get all the CAT ratings here.

Dow Inc. (DOW)

DOW deals in various materials-science solutions for the consumer care, infrastructure, and packaging markets. Its portfolio includes plastics, industrial intermediates, coatings, polyurethanes and silicones businesses for  customers in high-growth market segments. DOW operates 106 manufacturing sites in 31 countries and employs approximately 35,700 people.

Last month, the company partnered with Mura Technology, the global pioneer of an advanced plastic recycling solution, to help keep plastic waste out of the environment. The partnership combines Dow’s materials science capabilities and financial resources with Mura’s leading technology that conducts an advanced recycling process for plastic and carbon. The partnership should help it advance toward a low carbon and low plastic future and at the same time boost its  business growth.

During the first quarter, ended March 31, 2021, DOW’s net sales increased 21.6% year-over-year to $11.88 billion. Its operating EBIT rose 84.5% from the year-ago value to $1.55 billion. The company’s net income increased 288.5%year-over-year to $219.61 million, while its EPS grew 312.5% from the prior-year quarter to $1.32.

DOW is expected to see 57.7% revenue growth  year-over-year to $12.64 billion for the current quarter, ending June 2021. Its EPS is estimated to increase 876.9% from the year-ago value to $2.02 in the current quarter. So far this year, DOW’s stock has gained 23%.

DOW’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. DOW has a B grade for Growth and Value. Among the 98 stocks in the A-rated Chemicals industry, it is ranked #23.

Click here to see the additional POWR Ratings for DOW (Momentum, Stability, Sentiment and Quality).

CSCO shares were trading at $52.65 per share on Friday afternoon, down $0.20 (-0.38%). Year-to-date, CSCO has gained 19.46%, versus a 11.52% rise in the benchmark S&P 500 index during the same period.

About the Author: Samiksha Agarwal

Samiksha Agarwal has always had a keen interest in financial markets. This has led her to a career as a financial journalist. Through her extensive knowledge of fundamental analysis, her goal is to help investors identify untapped investment opportunities in the stock market.


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