In May, the iconic Dow Jones Industrial Average (DJINDICES:^DJI) will celebrate its 125th anniversary since its inception. Over those 125 years, the widely followed index has undergone more than 50 changes, including an expansion from 12 original components in 1896 to 30 components by 1928. Although the index has undergone a massive overhaul since 1928, it’s still comprised of 30 diverse, multinational businesses.
According to Wall Street, the Dow Jones is also a sanctuary for growth and value. Based on the consensus price target for each of the index’s 30 companies (provided by Wall Street professionals), nine Dow stocks offer double-digit upside.
1. salesforce.com: 27% implied upside
Perhaps unsurprisingly, the Dow stock with the most expected upside is cloud-based customer relationship management (CRM) software provider salesforce.com (NYSE:CRM). This relatively new addition to the Dow controlled more than 18% of the global CRM market at the end of 2019, and it boasts a forward-looking sales growth rate of around 20%.
Salesforce is also in the midst of acquiring enterprise communication platform Slack Technologies in a $27.7 billion in a cash-and-stock deal. When complete, salesforce can cross-sell its service on Slack’s platform, and vice versa.
2. Merck: 17% implied upside
Though seemingly all the buzz in the healthcare space has had to do with coronavirus vaccines of late, what makes Big Pharma Merck (NYSE:MRK) tick is its amazing oncology pipeline, led by immunotherapy Keytruda. Once expected to play second fiddle to Bristol Myers Squibb‘s Opdivo, Keytruda has blown well past its key rival.
Currently being studied in dozens of additional clinical trials, Keytruda might have surpassed $14 billion in 2020 full-year sales. If label expansion opportunities continue, the drug that currently accounts for close to a third of Merck’s annual sales could one day become the top-selling therapy in the world.
3. Chevron: 15% implied upside
Oil stocks may have drawn the short end of the stick in 2020 amid a record-breaking oil demand drawdown, but Wall Street is relatively bullish on integrated oil and gas giant Chevron (NYSE:CVX). The market certainly appreciates Chevron’s more conservative management team. Even with capital raises during the coronavirus recession, the company’s total debt-to-equity of 26% is considerably lower than all of its major oil and gas peers.
This relatively pristine balance sheet also affords Chevron the financial flexibility to make substantially accretive acquisitions. For instance, Chevron scooped up Noble Energy for $5 billion this past summer, securing Noble’s proved reserves for less than $5 per oil equivalent barrel.
4. McDonald’s: 15% implied upside
Like Chevron, the Golden Arches of McDonald’s (NYSE:MCD) are believed to have 15% upside. Though the coronavirus pandemic has presented global challenges (store/indoor dining closures), McDonald’s investments in marketing, digital campaigns, and promotions have helped to ignite comparable sales growth in its bread-and-butter market: the United States.
The McDonald’s growth strategy continues to center on keeping core customers happy, while also bringing back former customers with a mix of value-priced items and healthier food options. Simplifying the company’s menu should further help keep labor costs and service times down.
5. Home Depot: 14% implied upside
It really doesn’t seem to matter how well or poorly the economy is performing — do-it-yourself home improvement store Home Depot (NYSE:HD) always seems to offer upside. Low mortgages rates are fueling homebuying for some folks, while the recession is encouraging other existing homeowners to consider a remodel. Home Depot comes out a winner no matter what happens.
The company is spending big on digitization initiatives, too. In 2017, Home Depot announced plans to spend up to $11 billion to integrate its online and physical store experience, while improving the company’s supply chain. While results haven’t been perfect, you wouldn’t know it by looking at Home Depot’s stock.
6. Nike: 14% implied upside
Footwear and accessories giant Nike (NYSE:NKE) is another Dow stock Wall Street expects will “step up” to a higher share price. The fascination with Nike likely rests with its exceptional branding, well-known global ambassadors, and the company’s torrid sales growth in China. Though total sales were up 9% for Nike in the November-ended quarter, Greater China revenue catapulted higher by 24%.
Nike’s done an exceptional promoting its brands online, as well. Direct-to-consumer sales and Nike brand digital sales have shot through the roof during the pandemic. While it’s safe to assume we see some physical store traffic return over the next year or two, Nike’s main clear inroads with its digital presence.
7. Microsoft: 14% implied upside
Considering that growth stocks have been in favor for years in this low interest rate environment, it’s not a surprise to see Wall Street forecasting 14% additional upside in Microsoft‘s (NASDAQ:MSFT) stock. The bulk of Microsoft’s growth is derived from its cloud-based software and services. As businesses shift online and into remote-work environments, demand for software as a service and cloud storage infrastructure have rocketed higher.
Microsoft has also turned into quite the capital return superstar. Despite only yielding 1%, the company is returning more cash to investors via dividend than any other publicly traded company in the United States. Microsoft happens to be in the midst of a $40 billion share buyback program, too.
8. Coca-Cola: 13% implied upside
Beverage giant Coca-Cola (NYSE:KO) might be a slow-grower, but Wall Street foresees double-digit upside.
Coca-Cola currently has a presence in all but two countries worldwide (North Korea and Cuba), and its portfolio contains more than 20 beverage brands netting over $1 billion in annual sales. Controlling 20% of cold-beverage market share in developed countries and 10% of cold-beverage share in emerging markets gives it a nice balance of predictable cash flow and mid-single-digit growth potential.
Like Nike, Coca-Cola’s done a great job marketing its products, engaging with consumers, and making its brand one of the most-recognized in the world. Among consumer-packaged goods, no logo is more well-known than Coke’s.
9. Walmart: 11% implied upside
Finally, retail kingpin Walmart (NYSE:WMT) is believed to have 11% potential upside, relative to Wall Street’s consensus price target. It’s no secret that Walmart’s size has played a big role in its success. Having deep pockets and being able to buy in bulk usually means Walmart can undercut smaller competitors.
Walmart is also turning heads with its recent launch of its Walmart+ membership. Designed to take on Amazon, this $98/year service (or $12.95/month) provides free shipping, fuel discounts, and other tools to make the shopping experience faster and easier. In an increasingly digital world, this seems like a no-brainer growth move by Walmart.