The Dow Jones Industrial Average (DJIA) has performed solidly over the past few months, hitting an all-time high of 35,625.40 on August 16, 2021. With the fast-paced reopening of industrial activities, and favorable fiscal and monetary policies, the widely-watched benchmark index has gained 12.1% year-to-date and 24.3% over the past year.
However, along with the S&P 500 and the tech-heavy Nasdaq, DJIA tumbled yesterday as the consumer confidence slumped to a seven-month low, and Federal Reserve Chairman Jerome Powell expressed concerns over inflation. With a string of mixed economic reports, DJIA is expected to keep witnessing volatility in the upcoming months.
Given this backdrop, it could be wise to scoop up the shares of Dow Jones components Johnson & Johnson (JNJ) and Cisco Systems, Inc. (CSCO) because of their above-average dividend yields and favorable valuations. And, it is better to avoid NIKE, Inc. (NKE) and The Boeing Company (BA) as they will likely face challenges due to supply chain issues.
Stocks to Buy:
Johnson & Johnson (JNJ)
Established healthcare company, JNJ researches, develops, manufactures, and sells a range of products in the healthcare field worldwide. It operates through three segments: Consumer Health, Pharmaceutical, and Medical Devices, and it is primarily known for its baby care products and COVID-19 vaccine.
The company announced on May 6 that the Food and Drug Administration (FDA) approved TECNIS Synergy and TECNIS Synergy Toric II IOLs, and Health Canada also approved TECNIS Synergy Toric II IOLs. As the product enables surgeons to address astigmatism at surgery, it could increase demand in the upcoming months.
JNJ’s sales increased 27.1% year-over-year to $23.31 billion for the fiscal second quarter ended June 30, 2021. The company’s gross profit grew 33.8% year-over-year to $15.72 billion, while its adjusted net earnings increased 49% year-over-year to $6.62 billion. Also, its adjusted EPS increased 48.5% year-over-year to $2.48.
For fiscal 2021, analysts expect JNJ’s EPS and revenue to increase 20.3% and 14.3% year-over-year to $9.66 and $94.37 billion, respectively. In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 10.9% over the past year to close yesterday’s trading session at $162.81.
JNJ’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Growth and Stability, and a B grade for Quality and Value. Within the Medical – Pharmaceuticals industry, JNJ is ranked #2 of 215 stocks. To see JNJ’s ratings for Momentum and Sentiment as well, click here.
Cisco Systems, Inc. (CSCO)
CSCO designs, manufactures, and sells Internet Protocol-based networking and other communications and information technology products. In addition, it provides infrastructure platforms, including networking technologies of switching, routing, wireless, and data center products.
CSCO acquired Socio Labs, Inc. on July 8. Jeetu Patel, the company’s executive vice president and general manager, said, “The acquisition of Socio Labs is another example of how Cisco is rapidly addressing the evolving needs of our Webex customers and continuing to execute on our vision of providing the most seamless, inclusive, engaging and intelligent platform for meetings and events.”
CSCO’s net revenue increased 8% year-over-year to $13.10 billion for the fiscal fourth quarter ended July 31, 2021. The company’s non-GAAP operating income grew 10% year-over-year to $4.4 billion, while its cash flow from operating activities increased 18% year-over-year to $4.50 billion. Also, its non-GAAP EPS came in at $0.84, up 5% year-over-year.
Analysts expect CSCO’s EPS to increase 7% year-over-year to $3.67 in fiscal 2023. In addition, it surpassed Street EPS estimates in each of the trailing four quarters. Also, the company’s revenue is expected to increase 6.1% year-over-year to $52.88 billion in fiscal 2022. Over the past year, the stock has gained 41.9% to close yesterday’s trading session at $55.52.
CSCO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. It has an A grade for Quality, and a B grade for Stability and Sentiment.
Stocks to Avoid:
NIKE, Inc. (NKE)
NKE is known for its wide range of athletic footwear, apparel, equipment, and accessories worldwide. It operates through NIKE brand products in six categories: running, NIKE basketball, Jordan, football, training, and sportswear. It also markets products designed for kids and other athletic and recreational uses.
For the second quarter ended August 31, 2021, NKE’s revenue increased 16% year-over-year to $12.25 billion. However, the company’s global brand divisions’ EBIT losses increased 16% year-over-year to $987 million, while its corporate EBIT losses increased 10% to $545 million.
NKE’s annual revenue is expected to increase 5.7% year-over-year to $47.08 billion in fiscal 2022. However, analysts expect the company’s EPS to come in at $0.63 for the current quarter ending November 30, 2021, representing a 19.2% year-over-year decrease. Over the past month, the stock has lost 13.3% to close yesterday’s trading session at $145.30.
NKE’s poor prospects are apparent in its POWR Ratings. It has a D grade for Growth and Value. Click here to see the additional POWR ratings for NKE (Momentum, Stability, Quality, and Sentiment). It is ranked #27 of 36 stocks in the Athletics & Recreation industry.
The Boeing Company (BA)
BA designs, develops, manufactures, sells, services, and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight and launch systems, and services worldwide. The company operates through four segments: Commercial Airplanes; Defense, Space & Security; Global Services; and Boeing Capital.
BA’s revenue increased 44% year-over-year to $17 billion for the fiscal second quarter ended June 30, 2021. However, its total costs and expenses grew 12.4% year-over-year to $14.59 billion. In addition, the company’s total assets decreased 2.1% year-over-year to $148.93 billion.
BA’s annual revenue is expected to increase 30.6% year-over-year to $94.92 billion in fiscal 2022. However, analysts expect its EPS to remain negative in fiscal 2021. Over the past six months, the stock has lost 8.5% to close yesterday’s trading session at $218.41.
It’s no surprise that BA has an overall D rating, equating to a Sell in our POWR Rating system. The stock has a D grade for Value, Stability, and Quality.
JNJ shares were trading at $164.37 per share on Wednesday afternoon, up $1.56 (+0.96%). Year-to-date, JNJ has gained 6.38%, versus a 17.70% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal’s fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More…