Why These 3 Dow Stocks Are Soaring

The Dow (INDEX: ^DJI  ) jumped 0.65% today on vague comments by Germany suggesting that it wouldn’t prevent the European Central Bank from saving Spain and Italy. Because any solution to the European financial crisis and recession will probably have to involve the ECB stepping in to buy up those countries’ bonds, any hints that such a plan could actually happen is good news for the world economy.

But, of course, not every stock rose along with the market; in fact, some soared even higher:

Company

Price Change

Cisco (Nasdaq: CSCO  ) 9.5%
Home Depot (NYSE: HD  ) 2.4%
Microsoft (Nasdaq: MSFT  ) 2.0%


Cisco reported strong fourth quarter earnings yesterday, after days of reports that it was seeing strong demand for switchers. The real question is whether the results were a blip, or a sign that the tech giant is starting to recover. Management is certainly acting as though it’s a recovery. It announced a 75% dividend increase, and that it would pay out at least 50% of free cash flow through dividends and share buybacks. What’s more, cutbacks from state and local governments ,whose stimulus funding had run out, have begun to reverse. One wild card is Europe, which is experiencing large spending cuts by governments, and its own recession. Trading around only 10 times free cash flow, Cisco may be reasonably priced, either way.

There have been some reports that Microsoft will price its Surface tablet at $199. Microsoft seems to be trying to take a play out of Apple’s (Nasdaq: AAPL  ) and Amazon’s playbooks: sell hardware as a platform, with an eye towards taking a cut of products or software sold on it. Although $199 might be at a loss for Microsoft, the goal would be to capture some 30% of the tablet PC market in order to spur developer interest in the Windows 8 operating system that it will run. Microsoft’s new operating system is getting closer to prime time, with its recent release to manufacturers.

After jumping more than 3% on Tuesday, due to 12% quarterly earnings growth, Home Depot rose again today. Retail sales rose 0.8% last month. While new home constructions were down slightly from June, the figure is still up considerably from last year, and homebuilder confidence increased slightly. Today’s gain also couldn’t have been hurt by Wall Street’s increasing interest in the stock: JPMorgan, RBC, Citigroup, and BMO have each raised their ratings or price targets.

Cisco, Home Depot, and Microsoft all crushed the market but, as investors, it’s also important for us to remember to keep our eyes on long-term performance. For Cisco and Home Depot, that means we’re looking for improvement in the world and U.S. economies, respectively. For Microsoft, it’s proving that the company can stay relevant in the emerging age of tablets. If you’re looking for some more stock i deas, the Motley Fool recently highlighted “The 3 Dow Stocks Dividend Investors Need.” You can get the full scoop on these three promising Dow dividend dynamos by clicking here.

Ilan Moscovitz doesn’t own shares of any companies mentioned. The Motley Fool owns shares of Cisco Systems, Microsoft, and Apple. Motley Fool newsletter services have recommended buying shares of The Home Depot, Microsoft, and Apple. Motley Fool newsletter services have recommended creating a synthetic covered call position in Microsoft. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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