Four Plays from the Venerable Dow

08/26/2016 9:00 am EST

Focus: STOCKS

Stephen Leeb

Founder and Research Chairman, Leeb Group

Sometimes it pays not to overlook the obvious. The venerable Dow Jones Industrial Average may seem simply too familiar to offer much of interest, but indeed it is a treasure trove of strong choices, states Stephen Leeb, editor of The Complete Investor.

The Dow stock discussed below are particular standouts. These household names are among the world’s premier companies.

Caterpillar (CAT) is the world’s largest manufacturer of earth-moving equipment.
Infrastructure investments currently are at a multi-generational low and the firm’s earnings are more than 50 percent below 2011’s peak levels.

But when — as it must — the world starts investing in infrastructure again, and as commodity prices continue to perk up, Caterpillar will be a prime beneficiary.

With its high margins and strong free cash flow, it could easily see profits climb well into double digits over the next five to seven years.

The hallmark of 3M (MMM) is to uniquely apply science in ways that let it dominate a wide assortment of relatively small but indispensable markets. These range from Scotch tape to medical tapes to power transmission enhancers.

The company has developed an unmatched formula for meshing its scientific expertise with its business acumen at moving into promising markets via acquisitions.

Its ability to navigate the 2007-09 recession is testament to its success and its dominance in diverse markets. A two-year, 19 percent drop in profits was followed by a better than 20 percent gain in 2010 to all-time highs.

While 3M is tops in a number of small consumer markets, Nike (NKE) and McDonald’s (MCD) each dominate a major consumer market; Nike is king of athletic footwear and apparel; McDonald’s is king of fast food.

McDonald’s has faced many challenges in the past 15 years, from changes in how Americans eat to supply issues in its Asian markets.

Able to draw upon its huge financial resources, in 2015 it engineered a dramatic turnaround. Menus were upgraded, customer service was improved, and decision-making was simplified.

Thanks to this operational turnaround plus massive share repurchases, profits once again are climbing at a double-digit rate. In a world where relatively high food costs make consumers look for value, McDonald’s has a clear edge.

Nike is a brand that lets consumers emulate their idols, seen wearing the same sneakers and jerseys they can purchase.

But it takes more than Michael Jordan and other iconic athletes to keep a brand at the top and earnings and revenues consistently climbing at double-digit rates.

Nike is also at least in part a technology company, with athletes wearing its products for their performance-enhancing features. Recent technology has even led to self-lacing shoes.

Nike represents innovation across the board, from marketing to the quality of its products. The formula has paid off for more than a generation and shows no signs of slowing down.

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By Stephen Leeb, Editor of The Complete Investor

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