Since its debut in 1896, the Dow Jones Industrial Average (^DJI 0.30%) has stood tall as the stock market's health barometer. The index, which was comprised of a dozen industrial stocks in the late 19th century, is now a 30-component index containing highly profitable, diverse, multinational businesses.
But just because the Dow Jones is composed of 30 mature stocks, it doesn't mean they can't make patient investors a lot richer. With the Dow declining as much as 19% from its all-time closing high in 2022, and the S&P 500 producing its worst first-half return in more than 50 years, bargains abound for opportunistic investors.
Among these 30 stalwart companies are three Dow stocks that are screaming buys in August.
Johnson & Johnson
The first Dow Jones stock that's begging to be bought in August by long-term investors is healthcare conglomerate Johnson & Johnson (JNJ -0.94%). While J&J may not offer the jaw-dropping growth potential of tech stocks, it's been a steady moneymaker for decades, and it'll certainly help you sleep easy at night.
One of the great things about healthcare stocks is that they're defensive plays. No matter how well or poorly the U.S. economy and/or stock market perform, there are people who will always need prescription drugs, medical devices, and consumer health products. This provides a base level of demand for Johnson & Johnson's operating segments.
Something you might not know about J&J is that it's one of only two publicly traded companies that sport the highly coveted AAA rating from credit agency Standard & Poor's (S&P), which is part of S&P Global. S&P has more conviction that Johnson & Johnson will service and repay its debts than virtually any other company or entity in existence, including the U.S. government, which has an AA credit rating.
But the true key to J&J's success lies with its perfectly hedged operating model. For instance, Johnson & Johnson generates a majority of its sales, growth, and operating margin from selling brand-name drugs. However, brand-name therapies have a finite period of sales exclusivity. To counter this, J&J can lean on its medical device segment, which is perfectly positioned to take advantage of an aging domestic and global population. If one brand-name drug loses its exclusivity, there are plenty of other revenue channels that can step up and offset short-term weakness.
To further demonstrate Johnson & Johnson's consistency, consider that it's increased its base annual payout for 60 consecutive years -- only a handful of publicly traded companies offer a longer consecutive streak -- and grew its annual adjusted operating income every year for more than three decades prior to the COVID-19 pandemic.
While it may be something of a boring company these days, J&J is a bona fide wealth builder for the patient.
The second Dow stock that stands out as a screaming buy in August is money-center bank JPMorgan Chase (JPM 0.19%). While bank stocks are normally off-limits when the winds of recession are blowing, things could be a lot different this time around.
In each of the past two quarters, U.S. gross domestic product (GDP) has declined. Although the official eight-person committee that declares recessions has yet to do so, back-to-back quarters of GDP declines are typically viewed by the investing community as a recession. During economic pullbacks, banks often contend with rising loan delinquencies and higher charge-offs, and are usually required to set aside capital to cover future loan losses.
However, we are in uncharted territory when it comes to Federal Reserve monetary policy, and it should favor banks like JPMorgan Chase. With inflation hitting a 40-year high of 9.1% in June 2022, the nation's central bank has no choice but to rapidly raise interest rates to tame rising prices. In doing so, the Fed is rolling out the red carpet for bank stocks to collect more net-interest income on their variable-rate outstanding loans. Even if loan delinquencies rise, the positive impact from extra net-interest income should outweigh the negatives.
Another reason to be excited about JPMorgan Chase's potential is its investments in digitization. The company reported that active mobile customers (those who used their account digitally in the last 90 days) rose 11% in the June-ended quarter from the prior-year period. Online and app-based transactions are considerably cheaper for banks than in-person or phone-based interactions. Investing in digitization will help JPMorgan become a more efficient bank over time.
The bread-and-butter of banking profits also continues to work in JPMorgan's favor. Ultimately, banks that can grow their deposits and increase their outstanding loans without a notable decline in credit quality should become more profitable over the long run. Both loans and deposits for the company rose by 7% and 9%, respectively, from the prior-year period. Again, that's good news with interest rates headed higher.
Though there are cheaper bank stocks, relative to book value, few have executed as well as JPMorgan Chase over the past decade. Paying a 33% premium to book value (i.e., 133% of book value) and roughly 9 times Wall Street's forecast earnings for 2023 is an attractive entry point for long-term investors.
Walgreens Boots Alliance
The third Dow stock that's a screaming buy in August is pharmacy chain Walgreens Boots Alliance (WBA 2.68%).
As I've noted with J&J, healthcare stocks are almost always insulated from economic downturns because they're defensive plays. But in Walgreens' case, the lockdowns that accompanied COVID-19 significantly reduced foot traffic into its stores. Since Walgreens is reliant on its brick-and-mortar locations for most of its sales, it's taken a reasonable hit from the pandemic. But the good news is that management has taken a multitude of steps to ensure Walgreens is on the fast track to recovery and steady organic growth.
For a few years, Walgreens has been implementing a multipoint strategy designed to improve its balance sheet, boost organic growth, and develop its Walgreens Health segment, which should help it connect with customers at the grassroots level and drive repeat business.
In terms of the former, the company sold its wholesale drug business to AmerisourceBergen in June 2021 for cash and stock. It's been using this capital to reduce the debt on its balance sheet. What's more, Walgreens has reduced its annual operating expenses by more than $2 billion, a full year ahead of schedule.
Although cost-cutting is a common strategy employed by turnaround stocks, Walgreens is also going on the offensive. It's aggressively invested in its digitization efforts, which includes promoting online sales and drive-thru pickup. In its latest fiscal quarter (ended May 31, 2022), digital sales grew 25%, which the company attributed to 2.8 million same-day pick-up orders.
But arguably the most-exciting growth channel for Walgreens Boots Alliance is its partnership with VillageMD. This dynamic duo has opened 120 colocated, full-service health clinics at Walgreens' locations, as of May 31, with plans to have 1,000 clinics in place by the end of 2027 in over 30 U.S. markets. These are physician-staffed clinics, which differentiates them from other in-store health clinics that typically handle vaccinations or nothing more serious than a sniffle. The expectation is for these clinics to drive repeat patients into its stores and boost customer loyalty.
With Walgreens valued at less than 8 times Wall Street's forecast earnings for fiscal 2022 and parsing out nearly a 5% yield, it's the perfect mix of value and income for patient investors.