This post was originally published on this site

For the past 125 years, the iconic Dow Jones Industrial Average (DJINDICES:^DJI) has been one of the stock market’s most consistent measures of success. Initially comprised of 12 companies, the Dow Jones now contains 30 multinational stocks, nearly all of which are profitable, time-tested businesses.

Although Dow stocks aren’t often the fastest growing, this hasn’t hurt the index’s ability to reach new heights. Two weeks ago, the Dow hit an all-time closing high of 35,625. To put this figure into some context, the Dow has doubled in value since October 2016. On a trailing 12-month basis, it was up 25%, through Aug. 27.

But not all stocks can be winners.

Over the trailing year, four of the Dow’s 30 components have moved lower. The thing is, three of these four worst-performing Dow stocks (sorry, Amgen) now look like screaming buys.

Image source: Getty Images.

Merck

Generally speaking, healthcare stocks have fared exceptionally well since the coronavirus pandemic took shape. That’s because healthcare is a highly defensive sector. Diseases and ailments occur regardless of how well or poorly the U.S. and global economy are performing. This means a pretty steady stream of drug, device, and service demand within the healthcare space.

Unfortunately, pharmaceutical stock Merck (NYSE:MRK) didn’t get the memo. Over the trailing year, shares of Merck have shed almost 7%, making it the third worst-performing stock in the Dow.

I can offer two guesses why Wall Street hasn’t been satisfied with this pharmaceutical juggernaut. First, Merck chose to discontinue its development of a coronavirus disease 2019 (COVID-19) vaccine treatment in January after the company cited an “inferior” immune response to patients with natural infections.  Considering how we’ve witnessed multiple waves of COVID-19 infection in the U.S. and globally, the lack of a vaccine from Merck may be viewed as a missed opportunity.

The other possible reason for weakness is the spinoff of women’s health and biosimilars company Organon, which occurred in June. While this spinoff gives investors a more transparent look at some of Merck’s former assets, it’s reduced the company’s near-term profit potential.

However, these near-term concerns appear overblown. Merck continues to be fueled by its leading cancer immunotherapy Keytruda. Sales rocketed 23% higher during the second quarter to $4.18 billion, which puts it on pace for an annual revenue run-rate of more than $16 billion. If not for the huge sales associated with COVID-19 vaccines, Keytruda is on a trajectory to become the top-selling drug in the world within the next couple of years. Between label expansion opportunities, improved cancer-screening diagnostics, and strong pricing power, Keytruda alone is enough reason for Merck to head notably higher.

Perhaps equally exciting is Merck’s animal health division, which registered 34% sales growth in the second quarter and 25% through the first six month of 2021. Despite a rebound in livestock therapy sales, it’s companion animal sales growth that’s the cat’s meow. Companion animal sales are up 35% year-to-date and now account for nearly 6% of the company’s total sales.

With steady growth on the horizon, Merck has all the hallmarks of a screaming buy.

Image source: Getty Images.

Verizon

A second downtrodden Dow stock that’s begging to be bought by investors is wireless telecom giant Verizon (NYSE:VZ). As most tech stocks have soared, Verizon’s shares have retreated by close to 8%. If not for Amgen, it’d be the worst-performing Dow component over the past 12 months.

Why the underperformance? One possibility is that investors aren’t giving defensive plays the time of day at the moment. Historically low lending rates, ongoing quantitative easing from the Federal Reserve, and a free-spending Capitol Hill have lit a fire under growth stocks, and equities in general. Over the trailing year, 15% of more than 4,100 securities with at least a $300 million market cap listed on Finviz are up by at least 100%! A relatively slow mover like Verizon simply can’t stay on momentum chaser’s radars.

The other potential concern is Verizon’s debt load. Following AT&T‘s May announcement that it would combine WarnerMedia and Discovery to create a stand-alone media giant, and that it would reduce the dividend for its remaining wireless operations to address its debt, Wall Street has been leery of high debt loads in the telecom space. 

Thankfully, this short-term pain should equate to long-term gains for patient investors.

The biggest catalyst for Verizon looks to be the ongoing rollout of 5G infrastructure. It’s been a decade since wireless download speeds were substantially improved, which makes it likely we see a multiyear device replacement cycle. Keep in mind that data is the margin driver for Verizon’s wireless segment. If consumers and enterprises up their data consumption during this product replacement cycle, it’ll almost certainly lead to higher operating margins.

What’s more, Verizon outlaid a lot of capital to gobble 5G mid-band spectrum earlier this year. The goal of this purchase is to promote in-home broadband services. By the end of 2023, the company is aiming to have 30 million households onboard. Broadband isn’t a high-growth initiative, but it does generate highly transparent and predictable cash flow.

At roughly 10 times forward earnings, and with a yield (4.6%) that more than triples what you’ll net in income from the benchmark S&P 500, Verizon is a screaming buy.

Image source: Getty Images.

Salesforce

The third and final underperforming Dow stock should come as a surprise to just about everyone: cloud-based customer relationship management (CRM) software provider Salesforce.com (NYSE:CRM). Over the trailing 12-month period, Salesforce is down 4%, which is the fourth-worst performance within the Dow.

Considering that growth stocks have skyrocketed across the board, it’s definitely a headscratcher as to why Salesforce has effectively run in place over the past year. The best guess I can offer is that Wall Street has been concerned about how the pandemic would impact retail sales. CRM software, which is used by consumer-facing businesses to improve client relationships, is most commonly deployed within the service and retail industries. As long as variants of the coronavirus keep cropping up, retail sales activity could be somewhat muted.

But as previous recessions have demonstrated, a dip in Salesforce is always a buying opportunity.

The beauty of cloud-based CRM software is that it has a lengthy growth runway. Aside from benefiting when the U.S. and global economy enjoy long-winded periods of economic expansion, CRM software is finding a home in new industries and sectors. In particular, industrial, finance, and healthcare companies are beginning to adopt CRM software in greater numbers. This gives CRM software double-digit growth potential for a long time to come.

What makes Salesforce so special is its utter dominance of the CRM software space. When IDC closely examined global CRM spending in the first half of 2020, it found the 19.8% share that Salesforce held was more than the combination of Oracle, SAP, Adobe, and Microsoft. These four companies are the respective No.s 2 through 5 in global CRM share. 

Salesforce’s success is also a function of CEO Marc Benioff’s being an acquisition mastermind. Acquiring MuleSoft, Tableau, and more recently Slack Technologies, is helping create a more encompassing cloud-based, customer-centric ecosystem. The purchase of Slack will be especially useful in helping Salesforce reach small-and-midsized businesses.

With Benioff projecting his company’s full-year sales could more than double to $50 billion in five years, Salesforce is a good bet to outperform in the years that lie ahead.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.