This has been one of the toughest years for the investing community in a long time. The benchmark S&P 500 produced its worst first-half return in more than a half-century, while the technology-driven Nasdaq Composite has shed as much as 38% from its all-time high, which was set less than a year ago.
Although it, too, has fallen into a bear market, the ageless Dow Jones Industrial Average (^DJI -0.11%) has fared better than its peers, with a peak-to-trough decline of "only" 22%. Since the Dow Jones is packed with 30 historically profitable and mature multinational businesses, it shouldn't come as too much of a surprise that these companies have collectively outperformed during uncertain times.
Image source: Getty Images.
But make no mistake; plenty of amazing deals can still be had in this 126-year-old index. What follows are three Dow stocks that stand out as clear no-brainer buys in November.
Visa
The first Dow Jones Industrial Average stock that's a surefire buy in November is payment processor Visa (V 0.33%). Despite recessionary fears holding down cyclical stocks, Visa's competitive advantages and long-term growth opportunity vastly outweigh any short-term concerns.
The important thing for investors to understand about cyclical stocks is there are two very different sides to the same coin. For instance, even though recessions are an inevitable part of the economic cycle, periods of expansion tend to last substantially longer than downturns and recessions. That means payment processors like Visa might contend with a couple of quarters of reduced spending from consumers and businesses but enjoy multiyear periods where spending expands in lockstep with the U.S. and global economy. For long-term investors, Visa is a no-brainer bet on domestic and international spending expansion.
But it's not just macroeconomic factors working in its favor. Visa has easily identifiable opportunities in both developed and emerging market regions of the world. In the U.S., the largest market for consumption globally, Visa controls more than half of all credit card network purchase volume and was the only one of the four major payment networks to gobble up significant share following the Great Recession (2007-2009). It's well positioned to maintain its leading position in core spending markets.
At the same time, most international transactions are still being facilitated with cash. Moving its payment infrastructure into underbanked regions of the world -- the Middle East, Africa, and Southeastern Asia -- isn't something that's going to happen overnight. Visa has the option of making acquisitions or organically penetrating new markets in the decades to come. Doing so should help sustain a growth rate in the low double digits.
Furthermore, as I've previously mentioned, Visa's lending avoidance is a big reason for its ongoing success. Those aforementioned "inevitable" recessions usually lead to loan delinquencies and charge-offs. Since Visa sticks solely to payment processing, it doesn't have to set aside capital to cover loan losses. It's why we see Visa bounce back from economic downturns and bear markets faster than virtually all financial stocks.
Visa began last week at its lowest forward-year price-to-earnings (P/E) ratio since 2012 (below 23). For such a dominant company capable of sustained double-digit growth, this is a highly attractive valuation.
Walt Disney
A second Dow stock that's a no-brainer buy in November is Walt Disney (DIS 0.18%). After Disney contended with a mountain of pandemic-related concerns, the worst for the company now appears to be in the rearview mirror.
While the COVID-19 pandemic was a challenge for most multinational businesses, Disney had two of its core revenue streams effectively chopped off at their proverbial knees. Theme parks were shuttered in many parts of the world, and movie theaters were closed or had capacity significantly reduced, thereby hurting Disney's movie/entertainment division. But with the exception of China's zero-COVID strategy, much of Walt Disney's operations have returned to normal, and investors have been reminded of the many things that make this company so great.
For example, very few companies have the ability to easily connect with multiple generations of their customers. Thanks to its theme parks and vast content library, Walt Disney has little issue bringing friends and family together and helping them find common ground rooted in fun and imagination. It's pretty much impossible for competitors to match Disney when it comes to nostalgia and experiences.
To add to this point, another reason for investors to love Walt Disney is the company's unbelievable pricing power. While Wall Street has been worried about historically high inflation and how businesses will cope with rising costs, ticket prices for Disney's theme parks have handily outpaced the prevailing inflation rate for decades (at least in the U.S.). This is a company that's had no issue passing along inflation-topping price hikes to consumers.
The future looks bright for Disney as well. The company finished up its fiscal third quarter (ended July 2) with more than 152 million Disney+ subscribers. It took less than three years for Disney+ to reach the same number of streaming subscriptions Netflix needed more than a decade to attain. Though expenses will remain high as the company expands its reach into new international markets, Disney's streaming services are set up to become a key source of cash-flow generation later this decade.
With the company's core segments on the mend and its competitive edges intact, Walt Disney looks like quite the steal at 19 times Wall Street's forecast earnings for 2023 -- and that's no goofing around!
Image source: Getty Images.
Microsoft
The third Dow stock that's a no-brainer buy in November is tech giant Microsoft (MSFT 0.37%). Even though Wall Street gave "Ole Softy" a haircut following its fiscal first-quarter earnings release last week (Microsoft's Q1 ended on September 30), the company's multitude of growth catalysts remain unchanged.
Arguably the biggest issue for Microsoft isn't the prospect of a recession or slowing demand in certain operating segments. Rather, it's the exceptionally strong U.S. dollar. Converting foreign currency back into U.S. dollars has resulted in negative currency impacts of 4% to 8% across nearly all of its product and service segments. While this does represent a tangible hit to its sales and profit potential in the very short term, it has nothing to do with Microsoft's actual operating performance, which is still stellar.
The key growth driver for the company continues to be its push into cloud computing. Microsoft Azure -- the world's No. 2 cloud infrastructure service provider -- produced 42% constant-currency sales growth from the prior-year period in the first quarter, while other segments involving cloud services, such as Dynamics 365, Windows Commercial, and Office Commercial, all grew sales by a double-digit percentage, excluding currency movements. Enterprise cloud spending is still, arguably, in its very early stages.
Something else investors can appreciate about Microsoft is that it's a cash cow. Despite personal computer (PC) sales slumping as workers return to the office, Windows remains the dominant operating system on desktops worldwide. This high-margin legacy segment provides mountains of capital that Microsoft can use to reinvest in the cloud or make acquisitions.
Microsoft's balance sheet is a beast as well. The company ended September with roughly $107.3 billion in cash, cash equivalents, and short-term investments, and looks to be just a few years away from reaching $100 billion in annual cash-flow generation from its operations. This balance sheet allows Microsoft to take chances other businesses can't. To boot, Microsoft is one of only two publicly traded companies that credit-rating agency Standard & Poor's, a division of S&P Global, has assigned its highest rating possible -- AAA.
Trillion-dollar companies aren't expected to knock investors' socks off with their growth prospects. Yet Microsoft offers the potential for sustained low double-digit sales growth for years to come. At roughly 20 times forward-year earnings, it's a clear bargain.
