These 4 Dow Stocks Are Buy-And-Hold Favorites

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Many investors choose the stocks in the Dow Jones Industrials (DJINDICES: ^DJI  ) because they are all well-known stalwart companies, are typically leaders in their respective industries, and generally have reliable competitive advantages over their rivals. But because of their popularity, many of the Dow's stocks are obvious targets for short-term traders looking to capture profits over much shorter periods of time than typical long-term investors. For those focused on the long run, it's easier to avoid stocks that get a lot of trading attention and instead concentrate on those that largely escape notice. When you look at the stocks with the lowest typical dollar-value volume in the Dow, the four names that come to the top of the list are Travelers (NYSE: TRV  ) , DuPont (NYSE: DD  ) , Nike (NYSE: NKE  ) , and Wal-Mart (NYSE: WMT  ) .

Apart from having relatively low daily trading volume of $175 million-$325 million, what these companies have in common are business models that make them unusually predictable, with few needs to innovate or come up with surprising new products or services to produce growth. Insurer Travelers moves in cycles depending on the loss experience via unpredictable catastrophic events in the world, with premium pricing increases boosting profitability in the periods immediately following big losses, before eventually giving way to higher competition and erosion of pricing power. Similarly, megaretailer Wal-Mart has to navigate the changing trajectories of the consumer economy, giving customers what they need at the prices they can afford at any given time. But both companies have well-worn ways of doing business that don't lend themselves to short-term fluctuations.

That's not to say that these companies don't make potentially game-changing moves. DuPont has been transforming its business, adapting to long-term trends that have made its agricultural segment a much higher-growth prospect than its legacy industrial chemicals business. Nike has had to respond to rising competitive pressures from upstart competitors, and the incursion of technology into the athletic apparel field has put it in the role of tech innovator with its Nike+ FuelBand and possible future wearable offerings.

For the most part, though, the macroeconomic trends that move these stocks are measured in months and years rather than minutes and days, and most of their strategic shifts are telegraphed well in advance. That makes it far easier for their shareholders to ignore the day-to-day noise in stock prices and instead focus on the fundamentals that drive these companies' long-term prospects. For true long-term investors, being able to shut out distractions can be an invaluable tool in making smarter investing decisions.

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Read/Post Comments (2) | Recommend This Article (3)

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  • Report this Comment On January 15, 2014, at 5:26 PM, funfundvierzig wrote:

    BUY & HOLD investors who haplessly held on to the shares of the much shrunken and shrinking DuPont Company for the entire 21st century to date have been rewarded with zero capital appreciation. Indeed, DD has never recovered from its peak price set 16 years ago in 1998 @ 84 and change.

    ...funfun..

  • Report this Comment On January 15, 2014, at 5:32 PM, funfundvierzig wrote:

    The DuPont of 2014 is decidedly not a "leader in its respective industry". Ellen Kullman, DuPont Chieftess, is about to ditch 200 years of core competency in chemicals, and spin off her chemicals unit comprised of Teflon, TIO2, acids, refrigerants, and other chemicals.

    What is left of DuPont, the remnants are primarily comprised of DuPont AG & NUT businesses, where DuPont is second-place to Monsanto in seeds, and to Syngenta in crop protection, and to Novozymes in enzymes and food additives.

    Ironically, DuPont Titanium Technologies (TIO2), is about the last business in which DuPont is the true global leader and largest producer.

    ...funfun..

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