Although 2022 was the most challenging year for Wall Street in more than a decade, it was the ageless Dow Jones Industrial Average (^DJI 0.47%) that ultimately shone brightest. Despite all three major U.S. stock indexes falling into a bear market last year, the Dow's 9% decline was significantly less painful than the 19% drop for the broad-based S&P 500 and 33% plunge by the tech-focused Nasdaq Composite.
The not-so-subtle secret to this outperformance can be found in the Dow's composition. It's comprised of 30 mostly mature multinational companies, many of which pay a dividend. During times of economic uncertainty, they're just the type of stocks investors should want to own.
As we barrel ahead into a new year, the following five Dow stocks stand out as no-brainer buys.
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Walt Disney
Walt Disney (DIS -0.40%), the "House of Mouse," is the first Dow Jones Industrial Average stock that's a screaming buy in 2023. Although the COVID-19 pandemic wreaked havoc on its theme parks and substantially reduced its film revenue, Disney offers clearly defined catalysts moving forward.
As I've previously opined, the best thing about Walt Disney is that its characters, and the nostalgia it evokes, are irreplaceable. Few companies have the ability to cross generational gaps with ease and connect with consumers. This superior engagement is what allows Disney to aggressively increase its theme park ticket prices and stay well ahead of the inflationary curve.
Also, look for streaming service Disney+ to be a catalyst, rather than a cement block, for the company's share price in the new year. Though Disney+ has landed more than 164 million subscribers in less than three years, quarterly losses tied to streaming have soared. But now that the hard work has been done (i.e., building the subscriber base), Disney can focus on moving this segment toward profitability. Raising monthly prices and introducing an ad-supported tier are steps in the right direction.
The return of Bob Iger as CEO is yet another reason Walt Disney can outperform in 2023. Iger has been behind some of the company's smartest and most lucrative acquisitions, including Pixar, Marvel Entertainment, and Lucasfilm.
Johnson & Johnson
A second Dow Jones stock that's a surefire buy in 2023 is healthcare conglomerate Johnson & Johnson (JNJ 0.89%).
Healthcare stocks can be a really smart bear market buy because demand for healthcare services is independent of the performance of the U.S. economy or stock market. In other words, people are always going to get sick and require prescription drugs, medical devices, and healthcare services. This means a giant like J&J can expect pretty steady revenue and operating cash flow year in and year out.
Johnson & Johnson generates most of its sales growth and operating margin from selling pharmaceuticals. The tricky thing about bringing in more than half of its revenue from brand name drugs is that they have a finite period of sales exclusivity. J&J counters patent cliffs by developing new drugs, acquiring pipeline products, and leaning on its top-tier, medical-device segment. As people age, demand for medical devices should grow.
Johnson & Johnson is also, arguably, the safest stock to buy within the Dow. It's one of only two publicly traded companies to boast the highest possible credit rating (AAA) from Standard & Poor's, a division of S&P Global. Furthermore, J&J has increased its base annual dividend for 60 consecutive years. It's a relatively boring business but one that keeps delivering for its shareholders.
Image source: Getty Images.
Intel
The third Dow component that makes for a no-brainer buy in the new year is semiconductor stock Intel (INTC -1.37%). Even though chipmakers are cyclical and have been demonstrating near-term demand weakness, this industry leader has simply never been this inexpensive.
One of the biggest challenges for Intel has been fending off chief rival Advanced Micro Devices (AMD -4.39%). AMD has, indeed, been picking up central processing unit (CPU) market share in personal computers (PCs), data center servers, and mobile. However -- and this is an important "however" -- Intel remains the undisputed CPU kingpin even with modest share losses over the past couple of years. While PCs aren't the growth story they once were, Intel has a significant opportunity in data center servers, and it should continue to generate abundant cash flow from all of these segments.
One of the more intriguing moves for Intel has been to spend big on its foundry operations. The company broke ground last year on two manufacturing plants in Ohio at a combined cost of $20 billion. But thanks to the CHIPS and Science Act, which was signed into law by President Joe Biden in August 2022, Intel can qualify for subsidies to assist in becoming a domestic chip fabrication leader.
If you need additional reasons to buy into the Intel story, consider this: It's doling out a historically juicy 5.5% yield and is closer to its book value than at any point since at least the mid-1980s. Scooping up shares of this chip giant while they're beaten down would be a smart move.
Walgreens Boots Alliance
The fourth Dow stock that's begging to be bought in 2023 is pharmacy chain Walgreens Boots Alliance (WBA 1.88%). Walgreens is supporting a 5.1% yield and has grown its base annual payout in each of the last 47 years.
Though I did note that healthcare stocks tend to be immune from economic downturns, the COVID-19 pandemic was something of an exception for Walgreens. Since the company relies heavily on foot traffic into its retail stores, initial lockdowns put a hurting on its bottom line. But the good news is that management has been taking steps for years to boost its organic growth rate and lift its operating margin.
One of the ways Walgreens Boots Alliance expects to generate meaningful organic growth and improve customer loyalty is through the opening of full-service health clinics co-located at its stores. Walgreens has partnered with and invested in VillageMD, with the duo aiming to open as many as 1,000 physician-staffed clinics by the end of 2027 in more than 30 U.S. markets. Since most pharmacy chain clinics can handle nothing more than vaccinations, these full-service clinics are a true differentiator.
Walgreens has also been investing heavily in various digital sales initiatives. The pandemic taught management the importance of convenience. As a result, it's revamped its online offerings and promoted drive-thru pickup.
Currently valued at less than 8 times Wall Street's forward-year forecast earnings, Walgreens Boots Alliance looks like the perfect stock for value-and-income-oriented investors.
Visa
The fifth and final Dow stock that makes for a no-brainer buy in 2023 is payment processor Visa (V -0.82%).
Whereas most financial stocks have been shaken by the growing likelihood of a recession and historically high inflation, Visa has generally thrived. Even though it's a cyclical company that could be hurt by a recession, Visa has been benefiting from increased credit card use as the U.S. personal savings rate has plunged. Consumers having to spend more to buy basic necessities has helped the fee-driven Visa.
It also doesn't hurt that Visa is the go-to payment network in the U.S., the No. 1 market for consumption globally. Visa accounts for more than half of all U.S. credit card network-purchase volume and was the only major payment processor in the U.S. to substantially grow its share following the Great Recession. When coupled with its emerging market opportunities, it's not surprising to see Visa sustain revenue growth of close to 10% per year.
The final thing you should know about Visa that makes it an incredible buy is its lending avoidance. If Visa wanted to, it could probably become a highly successfully lender. But doing so would expose the company to loan losses during inevitable recessions. With the company strictly sticking to payment processing, it avoids the pitfalls of lending and doesn't have to worry about diverting precious cash to cover loan losses. In other words, it positions itself to emerge from economic downturns faster than most financial stocks.
