Three Dow Stocks to Buy Now
08/02/2007 12:00 am EST
Charles Carlson, editor of The DRIP Investor, thinks the Dow Jones Industrials will resume their recent rise, and he finds three of them that he expects to shine.
Will the Dow Jones Industrial Average be able to maintain its impressive performance [before the recent selloff]? I think the answer is yes. Valuations for most Dow stocks are still reasonable in light of their potential earnings growth. And for many of the Dow stocks, the recent strength is coming after relatively long bouts of sideways trading, which means these stocks could be in the early stages of their rebounds.
[These three] Dow Industrial components offer good total return potential and are buys at current prices. (All have direct-purchase and dividend-reinvestment plans—Editor.)
American Express (NYSE: AXP) is on pace for a solid showing in 2007. The consensus earnings estimate is $3.48 per share, up from $3.01 earned in 2006. That estimate could prove conservative should economic growth accelerate toward the end of the year. Growth in the number of cards and card usage should drive long-term growth.
Despite the [stock’s recent] strength, I foresee further gains this year and over the long term. The company represents an industry leader with a strong brand, solid management and outstanding track record. The stock, yielding 0.9%, represents a core holding for investors. (It closed just below $60 Wednesday—Editor.)
ExxonMobil (NYSE: XOM) has benefited from the strength in energy prices. Of course, history has shown oil prices tend to be volatile, and some pullback in the price of oil would not be surprising. The good news is that ExxonMobil’s massive and diversified operating base should help the firm ride out volatility better than its rivals. While ExxonMobil historically has not shown the biggest gains during up periods for the sector, its downside protection has been above average.
Investors should note that stocks that push into the $90s often move to $100, so it would not be surprising for these shares to sport a triple-digit stock price by year-end. Such a high absolute price tag could lead to a stock split. I own these shares and view them as the sort of “steady eddy” stock that is attractive for long-term dividend-reinvestment-plan (DRIP) investors. The stock’s current yield is 1.5%. (It closed just above $86 Wednesday—Editor.)
United Technologies (NYSE: UTX) reported profits and revenue growth that exceeded expectations and raised its earnings and revenue guidance for the year. The firm now expects profits of $4.15 to $4.25 per share, up from previous guidance of $4.05 to $4.20, on revenue of $53 billion, up from $51 billion. Its Otis elevator unit saw profits jump 13%, while its Pratt & Whitney aerospace unit recorded a 15% profit jump.
United Technologies trades at 18x the high-end earnings estimate from the company—not cheap, but a fair valuation given the company’s consistent track record of growth. The stock, yielding 1.7%, does not appear overextended and should continue to nudge higher. (It closed just below $75 Wednesday—Editor.)