The Dow's True Industry Leaders

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The reason so many investors pay so much attention to the Dow Jones Industrials (DJINDICES: ^DJI  ) is that they represent the cream of the crop of U.S. stocks. With just about every sector of the economy represented within the Dow, the list of 30 Dow components is a Who's Who of corporate standouts that reflect the strength of the overall U.S. economy.

Among the members of the Dow Jones Industrials, you'll find a number of companies that are the unquestioned leaders within a given industry. But do those leadership stocks make better investments than the Dow overall? That's the question this article will seek to answer by giving four examples of Dow companies that truly dominate their respective industries.

Coca-Cola (NYSE: KO  ) : 1-year return 11.7%, 5-year average annual return 6.1%
Soft-drink giant Coca-Cola doesn't just dominate its industry; it dominates the global economy with the No. 1 valued brand in the world according to Interbrand. For decades, the company has held PepsiCo at bay and forced it to differentiate itself with its global snack business, leaving Coke and Diet Coke as the top-selling drinks in the market.

One sign of a true leader, though, is never being satisfied with what you have. That's why Coke's 2020 Vision program is so important, with goals of expansion that include bringing more Coke products to underserved areas such as the BRIC emerging markets as well as the Middle East in the next decade. If the company can get residents in those areas to up their cola consumption to anywhere near what prevails in the U.S. and other more mature markets, then Coca-Cola could see huge growth.

UnitedHealth Group (NYSE: UNH  ) : 1-year return 1.7%, 5-year average annual return (0.2%)
UnitedHealth has gone through a lot of changes since it was first organized nearly 40 years ago. The newest Dow member now sports revenue of more than $100 billion annually, with diverse subsidiaries that include private-employer-sponsored insurance, federal and state government programs, and plans for members of the military, as well as its Optum businesses with offerings of pharmacy benefits and health data analytics. As the U.S. population ages and health-care reform pushes millions of new members into the insurance pool, UnitedHealth has a huge opportunity right now.

But like Coca-Cola, UnitedHealth has also aimed its growth efforts at international markets. The company's big investment in Brazil's Amil signals a desire to broaden its geographical scope, a sensible reaction to the political risk that UnitedHealth has experienced all too much of with U.S. health-care reform efforts in recent years.

McDonald's (NYSE: MCD  ) : 1-year return (5.6%), 5-year average annual return 14.5%
With billions of customers served, McDonald's enjoys unquestioned fast-food dominance. Its brand awareness spans the globe, and emerging-market expansion has also been a big part of its growth story over the past decade or so.

But one mark of a true leader is being able to overcome adversity. Back in November, McDonald's announced its first monthly decline in same-store sales in nearly a decade, raising questions about its ability to keep its growth rates up. Yet by the following month, McDonald's was back to its growing ways, with better results in all of its markets. Despite potential challenges in China, McDonald's has a track record of bouncing back from difficulties and is a good investment for the possibility of tough economic times.

Wal-Mart (NYSE: WMT  ) : 1-year return 17.9%, 5-year average annual return 9.9%
Retail behemoth Wal-Mart leads many categories, as the largest private employer in the world with an employee count that trails only the military bodies of the U.S. and China. With $464 billion in revenue over the past 12 months, Wal-Mart's sales would put it among the top 30 countries in the world in terms of GDP.

Like McDonald's, Wal-Mart has suffered some setbacks lately, with the company having had a long streak of quarterly same-store sales declines from 2009 to 2011 as the economy recovered from the depths of the financial crisis. Despite scandals in Mexico, however, Wal-Mart has done a good job of combining international growth, with domestic stability to maintain its lock on the lower end of the retail industry.

Sticking with the leaders
These four companies have seen their stocks perform in a wide variety of ways, showing that you can't count on industry leadership to give you a clear and lasting investing edge over companies that face stronger competition. However, as picks for a conservative portfolio, these four stocks have a lot to offer you, including solid dividends as well as prospects for future growth.

The best way for investors to profit from industry leaders is to pick them before they reach the top. That strategy has helped Motley Fool co-founder David Gardner to great success, as he seeks out tomorrow's great leaders while they're still small and relatively unknown. Learn more about David's process and his current picks by taking a personal tour of his Supernova service. Don't wait; click here to get instant access before this offer ends.

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  • Report this Comment On January 12, 2013, at 11:31 AM, PEStudent wrote:

    The Coca Cola return does not include the dividend, which is about another 3% per year. Yahoo! list's Coca Cola's 5-year return at 8.82% instead of this article's 6.1% and that seems more accurate to me: I just sold Coca Cola stock to partially pay for a new car I bought with cash and that sale gave me a lot of capital gains taxes to pay on my 2013 income.

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Related Tickers

8/23/2016 4:00 PM
KO $43.85 Up +0.11 +0.25%
Coca-Cola CAPS Rating: ****
MCD $115.19 Down -0.23 -0.20%
McDonald's CAPS Rating: ***
UNH $142.01 Down -0.08 -0.06%
UnitedHealth Group CAPS Rating: ****
WMT $71.97 Down -0.73 -1.00%
Wal-Mart Stores CAPS Rating: ***