Will a Soaring Dow Leave Defensive Stocks Behind?

The Dow Jones Industrials started off the quarter on the right foot today, but some slower-growing stocks missed out.

Jul 1, 2014 at 12:00PM

The Dow Jones Industrials (DJINDICES:^DJI) had gained 125 points as of noon EDT Tuesday. Encouraging signs of economic growth bolstered investor sentiment this morning, and the prospect of closing at a new record level appeared to build momentum as many shareholders seemed once again to buy even the tiniest of dips in the Dow. Yet the big updraft in the index largely left out defensive stocks Coca-Cola (NYSE:KO) and Wal-Mart (NYSE:WMT), with the two stalwart Dow components sticking close to unchanged. As the Dow keeps climbing, will the bull market pass Coca-Cola and Wal-Mart by?

Source: KB35, Flickr.

Coca-Cola actually fell just under breakeven as investors assess whether the company has much growth potential left. Defensively minded shareholders have already bid up prices of the beverage giant's stock to lofty levels, with Coca-Cola stock fetching more than 20 times forward earnings. Yet most investors who follow the stock believe Coca-Cola will have difficulty growing its business at faster than a single-digit percentage pace in the long run, and challenges both from its archrival and from smaller players in the beverage industry pose as big a threat as the move away from Coca-Cola's namesake carbonated drinks. Coca-Cola's investment in Keurig Green Mountain appears to be a play toward furthering its growth ambitions, but even global publicity from key sporting events might not help the core beverage business regain its past growth trajectory.


Source: Wal-Mart.

Wal-Mart climbed a tiny bit Tuesday, but the big-box retailer still faces plenty of difficulties looking forward. Even as Wal-Mart begins selling goods online in India and works at bolstering its global e-commerce footprint, the company still must deal with the huge head start that online rivals have. Perhaps more important, though, Wal-Mart has had surprising difficulty in adapting its store concept to emerging-market economies, despite the fact that its price-conscious philosophy has a great deal of appeal in areas of the world where its customers aren't as affluent as U.S. consumers are. Moves such as expanding its grocery offerings to include organics could draw more attention to Wal-Mart, but if shoppers keep moving away from big-box retail toward more accessible store locations, then Wal-Mart will need to execute well on its Neighborhood Markets store initiative in order to restart its growth engines.

Of course, the whole point of defensive stocks is to hold up well during down markets, not chase the Dow as it soars toward record highs. Nevertheless, both Coca-Cola and Wal-Mart have significant hurdles to overcome before they can guarantee positive results for shareholders in the long run.

Leaked: This coming consumer device can change everything
Imagine the multi-billion dollar sales potential behind a product that can revolutionize the way the world shops and interacts with its favorite brands every day. Now picture one small, under-the radar company at the epicenter of this revolution that makes this all possible. And its stock price has nearly an unlimited runway ahead for early, in-the-know investors. To be one of them and hop aboard this stock before it takes off, just click here.  

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola. The Motley Fool has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information