These 4 Dow Stocks Pack a Big Profit Punch

People follow the Dow Jones Industrial Average (INDEX: ^DJI  ) so closely because you'll find many of the most successful companies in the world within its ranks. With exposure to a wide range of market sectors that go far beyond traditional industrial companies, the Dow gives a good snapshot of the health and prosperity of U.S. companies across the market.

But just because the 30 members of the Dow Industrials are leaders in their respective industries, that doesn't mean they're all uniformly successful. The ways in which the Dow 30 produce profits are as different as the companies themselves. As we touched on yesterday, the companies with the biggest revenue in the Dow are truly massive in size; they're household names that customers around the globe look to for the products they need. Yet other companies have distinguished themselves despite having far lower revenue figures than some of their larger Dow peers.

How these Dow stocks make the most of their sales
Today, I want to take a look at the Dow components that do the best job of transforming revenue into profits. By doing the most with what they have, these companies hold their own against companies with much higher sales volumes. By looking at how these stocks earn their profits, you can get another perspective on evaluating investment opportunities for your portfolio.

Microsoft (Nasdaq: MSFT  )
Software giant Microsoft does an excellent job of turning its tech-oriented business into profits, with its $23.3 billion in net income over the past 12 months trailing only oil goliaths ExxonMobil and Chevron. With revenue just a sixth that of Wal-Mart, Microsoft outearns the discount retail leader by nearly half.

The secret to Microsoft's success comes from its low-cost business model. With most of its software products prepackaged onto computers that hardware companies sell, Microsoft doesn't have to maintain the huge, logistically challenging supply chains that Wal-Mart has. The company can even make direct sales to consumers over the Internet without any shipping expense. Even as some criticize the company for missing out on growth opportunities, Microsoft continues to make money from its dominance in PC operating systems and Office software and appears poised to continue to do so for years to come.

Intel (Nasdaq: INTC  )
Following in the same theme as Microsoft is semiconductor pioneer Intel. Just as Microsoft gained prominence from becoming ubiquitous within the PC world, Intel's microprocessors formed the foundation of the original PC revolution. Again, with products that essentially distribute themselves through computer retailers, Intel saves versus higher-sales companies that have to get their products directly to consumers on their own, leading to profit of more than $12.5 billion in the past 12 months.

Like Microsoft, Intel gets criticism from those who argue that it's been slow to take command of the mobile-device chip market. But the PC market is far from dead, and Intel is taking strides toward building its presence in the mobile industry as well. With plenty of resources to compete, Intel should stay heavily profitable for the foreseeable future.

McDonald's (NYSE: MCD  )
Given its global presence, you might be surprised to learn that McDonald's has the third lowest sales of any Dow stock. But thanks to its smart menu management and pricing strength, the company turns that relatively small revenue into enough profit to crack the top half of the Dow in terms of net income, with almost $5.6 billion in profit over the past year.

McDonald's has a highly successful franchise model that transfers much of the business risk of its stores onto franchisees. That frees up the company to provide high-margin supplies and services to its franchisees, who also rely on the parent company to support their stores with advertising and marketing. Given recent innovations like its expansion into premium coffee drinks and smoothies, McDonald's has plenty of room to grow globally and capture more sales.

Coca-Cola (NYSE: KO  )
Coca-Cola is a global brand leader, and its success has hinged on its ability to use its high-value brand to keep its profit margins high. Unlike Microsoft and Intel, Coke has to maintain an extensive distribution network to get its beverages in front of customers.

But rather than shying away from that challenge, Coke embraced it, building one of the most efficient networks in the world and turning it into a business asset in itself. With many competitors having little choice but to sign distribution agreements with Coke, the soda king exercises a lot of control over the industry and helps to keep its own profits up.

Make more money
To be successful, a company has to make the most of its opportunities to profit. These four stocks show what it takes to boost earnings, and they look poised to keep income rolling in well into the future.

For U.S. companies to keep growing, the global economy has become critical. Get a progress report on how the best companies are faring by reading our latest special report, "3 American Companies Set to Dominate the World." This free report won't be available forever, so we invite you to get your copy today!

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. You can follow him on Twitter, @DanCaplinger. The Motley Fool owns shares of Coca-Cola, Intel, and Microsoft. Motley Fool newsletter services have recommended buying shares of Coca-Cola, Intel, Chevron, Microsoft, and McDonald's, as well as creating a bull call spread position on Microsoft and a diagonal call position on Wal-Mart. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


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