For the past two months, Wall Street has been reminded that stocks can push lower just as easily as they can head to new highs. All of the major indexes have been dealing with some of their steepest pullbacks in two years.
But where there's volatility, there's almost always opportunity. This is especially true for companies in the world's most iconic stock index, the Dow Jones Industrial Average (^DJI 0.06%). The Dow's 30 components are time-tested and usually profitable, making them the perfect candidates to bounce back from this ongoing market correction.
In March, three Dow stocks stand out as screaming buys.
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Johnson & Johnson
When stock market corrections and crashes occur, Wall Street and investors often become more critical of valuations and the intangibles that can help a company navigate near-term volatility. Perhaps no Dow Jones stock does a better job of checking all the right boxes than healthcare conglomerate Johnson & Johnson (JNJ 0.67%).
The beauty of healthcare stocks is that they're virtually impervious to stock market volatility. No matter how much the stock market declines, there will always be people who need prescription drugs, medical devices, and healthcare services. This provides highly transparent cash flow and predictable demand for J&J -- and Wall Street loves predictability.
Johnson & Johnson also brings unparalleled safety and one heck of a secure dividend to the table. It's one of only two publicly traded companies with the highly coveted AAA credit rating from Standard & Poor's (the highest rating possible), and J&J is working on a 59-year streak of increasing its base annual payout.
What makes this business so impressive is how its three operating segments work together. In other words, each brings something important to the table that the other two operating divisions might lack.
For instance, consumer health is J&J's slowest-growing division, but it offers strong pricing power, predictable demand, and steady cash flow. Then there are medical devices, which give Johnson & Johnson a clear path to take advantage of an aging domestic (i.e., baby boomer) and global population. Finally, pharmaceuticals have a finite period of exclusivity, but they're responsible for the bulk of J&J's sales growth and operating margin.
Johnson & Johnson is also reasonably valued. With its growth heyday in the rearview mirror, it's not as if J&J trades at an aggressive price-to-earnings (P/E) multiple. However, with mid- to high-single-digit sales growth in the forecast, the stock screams "inexpensive!" at less than 16 times Wall Street's forecast earnings per share in 2022. If it hits Wall Street's expectations in 2022, it'll be valued at its lowest P/E ratio in over a decade.
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Salesforce
A second Dow stock that's a screaming buy in March is the index's fastest-growing component, Salesforce.com (CRM -1.59%).
Salesforce is a provider of cloud-based customer relationship management (CRM) software. In easier-to-understand terms, it provides software to consumer-facing businesses that helps these businesses better engage with and understand their existing client base. CRM solutions can be used to oversee product or service issues, handle online marketing campaigns, and run predictive sales analyses. For example, if a new product were coming out, CRM might be used to determine which clients are likeliest to buy it.
Through at least the midpoint of this decade, if not well beyond, CRM software sales are expected to climb by a double-digit percentage on an annualized basis. While CRM is a veritable no-brainer solution for the service industry, it's been gaining use in the industrial and financial sectors as well.
Salesforce is the unquestioned No. 1 in the CRM software space. According to a report from IDC that examined global CRM spend in the first-half of 2021, the company brought in nearly 24% of all CRM revenue. That was more than four percentage points higher than the No. 2 through No. 5 companies in market share on a combined basis. Salesforce has established itself as the premier name in cloud-based CRM applications.
Although the company has had no issue growing organically, CEO Marc Benioff has overseen a multitude of high-quality, growth-spurring acquisitions. Some of the best-known include MuleSoft, Tableau, and Slack Technologies. That last one, which closed last year, broadened Salesforce's potential customer pool, expanding its ecosystem, and provided a jumping-off point for the company to cross-sell its solutions.
Salesforce has consistently grown its sales annually by 20% or more for two decades, and will look to continue this streak in fiscal 2023 (calendar year 2022). With management forecasting a near-doubling in sales to $50 billion by fiscal 2026, any dip in Salesforce's shares represents a clear buying opportunity.
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Intel
The third and final Dow stock that's a screaming buy in March is semiconductor giant Intel (INTC -1.79%).
Similar to Johnson & Johnson, Intel's growth heyday has long since passed. But this doesn't mean it isn't wildly profitable (it is!) or that value investors can't generate hearty long-term returns by owning a stake in this tech kingpin. In fact, short-term global semiconductor supply issues have rolled out the red carpet for investors to buy time-tested companies like Intel on the cheap.
Although Intel's two largest segments by revenue are generally slow-growing, they provide predictable demand and cash flow. The Client Computing Group (CGC), which generates revenue from personal computers, and the Data Center Group (DCG), which continues to benefit from a steady shift of consumer and enterprise data into the cloud, combined to bring in more than $66 billion in sales for Intel in 2021. PCs aren't going anywhere, and demand for data centers is as strong as ever in the wake of the pandemic.
But what's really important is that the operating cash flow provided by these stalwart operating segments allows Intel to invest in faster-growing initiatives. For instance, the companies solutions tied to the Internet of Things (IoT) surged 33% last year to approximately $4 billion. Even though a significant portion of this growth was tied to demand recovery from COVID-19, Wall Street analysts expect IoT spend to grow globally by a double-digit percentage annually through at least mid-decade.
What's more, Intel could benefit immensely from the expected spinoff and initial public offering of Mobileye. Intel acquired it five years ago for a hefty and head-scratching (at the time) $15.3 billion. But Mobileye, whose EyeQ chips are essential to driver-assist functions on next-generation vehicles, recorded $1.4 billion in sales last year. That was up 43% from 2020 and jibes with the expectation that electric vehicles will afford even more opportunity for Mobileye to grow its business.
As one final note, Intel also announced a $20 billion investment last year that'll see the company open two next-gen chip factories in Ohio.
Despite modest top-line growth now, Intel has laid a foundation for steady cash flow generation and stronger growth in the second half of the decade. With a 3% yield and an estimated P/E ratio below 14 for 2022, Intel looks like a fantastic buy.
