Here are the best Dow stocks of 2020.
It’s been a wild, volatile run for investors in 2020. But despite a global health crisis and an economic shutdown, the Dow Jones Industrial Average recently hit 30,000 for the first time in history. Dow stocks haven’t been the greatest investments in the past decade. High-growth tech stocks have led the market while blue-chip value stocks have lagged. However, the Dow — composed of 30 large companies — is up about 5% in 2020 and has outperformed the S&P 500 in the month of November. Here is Morningstar’s take on the seven top-performing Dow stocks of 2020.
Apple (ticker: AAPL)
Apple is not only the most valuable public company in the world, but it is also the best-performing Dow stock of 2020. Apple shares are up 66% year to date as investors anticipate a massive 5G device upgrade cycle in the next several years. However, after Apple’s big 2020 run, analyst Abhinav Davuluri says additional upside may be limited in the near term. As Apple focuses on shifting to a more subscription-based service model, Davuluri says hardware will become increasingly commoditized and product replacement cycles will lengthen. Morningstar has a Hold rating and $85 fair value estimate for AAPL stock.
Cloud customer relationship management software leader Salesforce.com has also had a great year in 2020, as many customers were forced to shift most or all of their workplaces online. Salesforce shares are up about 50% year to date, and the company is reportedly in talks to buy workspace collaboration and messaging platform Slack Technologies (WORK). Analyst Dan Romanoff says potential synergies between Salesforce and Slack make sense, but the stock initially traded lower on the news given the deal would certainly come at a steep price for Salesforce. Morningstar has a Hold rating and $253 fair value estimate for CRM stock.
Microsoft Corp. (MSFT)
Microsoft shares are up more than 36% in 2020. A surge in remote work has generated booming demand for the company’s cloud services and workplace software. In its fiscal first quarter, Microsoft reported 12.3% revenue growth and 30.1% net income growth. Romanoff says Microsoft’s ability to consistently grow revenue and improve margins at a $1.6 trillion valuation is extremely impressive. Romanoff says Microsoft’s legacy on-premises business has made it easy for existing customers to transition to cloud-based architecture at their own pace. Morningstar has a Hold rating and $235 fair value estimate for MSFT stock.
While many retailers have struggled this year, Nike’s direct-to-consumer business has allowed the company to successfully navigate the crisis. In the most recent quarter, Nike’s revenue dropped just 0.6% overall compared with a year ago, thanks to an 82% increase in online sales. Analyst David Swartz says a shift toward working and exercising at home has generated a major tailwind for casual dress and activewear this year. The company’s women’s apparel division sales also increased by 200% year over year last quarter. Morningstar has a Hold rating and $107 fair value estimate for NKE stock.
Walmart‘s investments in e-commerce paid off big in 2020, sending its stock higher by about 28% in an extremely difficult environment for retailers. Walmart’s revenue was up 5.2% and U.S. same-store sales were up 6.4% in the third quarter. Those overall numbers were buoyed by a 79% jump in U.S. online sales. Analyst Zain Akbari is projecting low- to mid-single-digit annual sales growth for Walmart over the next decade. The company has also refocused its international business on North America, China and India. Morningstar has a Hold rating and $116 fair value estimate for WMT stock.
Home Depot (HD)
Home Depot has been another retail sector superstar in 2020. Home Depot’s business has benefited from several trends this year. A rise in remote work has resulted in Americans moving out of large cities and into suburbs. In addition, more Americans have shifted their travel and event budgets into home improvement projects this year. Home Depot shares are up more than 26% year to date, and analyst Jaime Katz says the company’s recent acquisition of HD Supply Holdings (HDS) creates even more growth opportunities in 2021 and beyond. Morningstar has a Hold rating and $210 fair value estimate for HD stock.
Construction equipment giant Caterpillar has been an unlikely top performer in 2020. In the third quarter, Caterpillar reported a 22.5% drop in revenue and a 55.2% decline in net income. Equipment sales declined across all regions and segments. Caterpillar investors may be anticipating a sharp rebound in the construction market in 2021, or the company may have simply exceeded extremely low expectations this year. Analyst Brian Bernard says Caterpillar’s focus on higher-margin aftermarket revenue will increase its overall profitability in the next 10 years. Morningstar has a Hold rating and $149 fair value estimate for CAT stock.
Dow’s top performers:
— Apple (AAPL)
— Salesforce.com (CRM)
— Microsoft Corp. (MSFT)
— Nike (NKE)
— Walmart (WMT)
— Home Depot (HD)
— Caterpillar (CAT)
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