Are These Fast-Growing Dow Stocks a Buy?

The global economy is at a key crossroads right now, with central banks in many countries fighting against economic slowdowns throughout much of the world. As once-red-hot emerging markets have cooled down and less healthy markets like Europe in danger of falling into recession, companies that can produce sales growth are at a premium right now.

With that thought in mind, let's take a look at the companies within the Dow Jones Industrials (INDEX: ^DJI  ) to see which ones appear likely to produce the greatest revenue growth over the next fiscal year. Once we've identified the best growth candidates, we'll then look a little closer to see if their stocks are a buy right now.

Stock

Expected Revenue

Expected Revenue Growth vs. Current Fiscal Year

United Technologies (NYSE: UTX  )

$66.5 billion

14.1%

UnitedHealth Group (NYSE: UNH  )

$119 billion

8.5%

Boeing (NYSE: BA  )

$87.3 billion

8.1%

Microsoft

$86.6 billion

7.8%

Johnson & Johnson (NYSE: JNJ  )

$72.3 billion

7.4%

Source: Yahoo! Finance. All fiscal years end Dec. 31 except Microsoft, which ends June 30.

Growth by acquisition
For United Technologies, a big chunk of its expected revenue boost will come from its massive acquisition of aerospace component and systems maker Goodrich. With Goodrich having generated more than $8 billion in revenue last year, a fully integrated post-merger United Technologies will owe nearly all of its expected revenue growth to the acquisition.

Bear in mind, though, that United Technologies has had to divest itself of some of its smaller businesses to get approval for the Goodrich acquisition. That offsets some of the revenue gain from Goodrich itself and points to at least modest organic growth. Given the strength in the commercial aerospace industry, that should come as no surprise and is a key driver for doing the acquisition in the first place.

UnitedHealth Group is also on the acquisition path, as it plans to pay $4.9 billion for a 90% stake in Brazil's Amil. At current exchange rates, Amil had about $4.5 billion in revenue in 2011, so fully integrating that revenue into UnitedHealth would boost revenue by about 4%, leaving the remainder due to organic growth. What's likely to have a greater impact on UnitedHealth's revenue, however, is the individual mandate under the Affordable Care Act, which could bring millions of new customers to health insurers and provide a real long-term growth opportunity.

Last, Johnson & Johnson bought Synthes back in June, giving it more exposure to the orthopedic surgery market. With Synthes bringing in almost $4 billion of revenue during 2011, J&J is banking on the acquisition to provide a big part of its growth in the coming year. To support its sales figures, J&J will need to reverse trends toward recalls and other slip-ups and rebuild confidence in its brand.

Old-fashioned expansion
Some think of growth by acquisition as cheating and prefer to see organic growth from within a company's established market. That's what Boeing has done, taking full advantage of huge demand for commercial airliners to offset any pressure from potential defense cuts on the military side of its business. In fact, the biggest question facing the aircraft-maker is whether Boeing can ramp up production sufficiently to meet the huge demand -- an enviable position for any company.

For Microsoft, the name of the growth game is the Windows 8 operating system. With two goals -- catering to its core PC customers while also making inroads into the hot mobile market -- Microsoft is aiming to get the most out of its traditional cash cow. Moreover, with the potential to move to subscription-based models for software like its Office 365 suite, Microsoft may end up with the best of both worlds -- assuming the whole Windows 8 transition goes smoothly.

Are these growers a buy?
During times of uncertainty, paying premium prices for growth stocks rarely makes sense. Unless you expect another huge shift in the health insurance arena, UnitedHealth looks attractive, with a low earnings multiple to go with its potential for earnings growth. Boeing, on the other hand, also sports a cheap valuation and arguably has even greater growth potential just staring it in the face -- as long as it can execute. For the others, the transitions Microsoft, J&J, and United Tech are going through are significant enough that you'd be better served to wait and see what happens to the companies before committing your capital.

To get another perspective on whether Boeing's a buy right now, be sure to check out the Fool's latest premium research report. Inside, two of the Fool's best industrial industry minds have collaborated to provide investors with the key must-know issues around Boeing. They'll be updating the report as key news hits, so make sure to claim a copy today by clicking here now.

Fool contributor Dan Caplinger has no positions in the stocks mentioned above. You can follow him on Twitter, @DanCaplinger. The Motley Fool owns shares of Johnson & Johnson and UnitedHealth Group. Motley Fool newsletter services recommend Johnson & Johnson and UnitedHealth Group. 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 Motley Fool has a disclosure policy.


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