The past 14 months have been challenging for investors. Following a year with minimal pullbacks in 2021, last year featured a bear market for all three major U.S. stock indexes.
But amid this carnage, it's the ageless Dow Jones Industrial Average (^DJI -0.98%) that's stood tall. Although the Dow Jones shed 9% of its value last year, this was markedly better than the benchmark S&P 500 or tech-focused Nasdaq Composite, which respectively lost 19% and 33%.
Image source: Getty Images.
Investors tend to gravitate to the Dow during periods of volatility and uncertainty because it's comprised of 30 generally profitable, time-tested, and multinational businesses. While most Dow stocks are no longer fast-growing companies, they've demonstrated to Wall Street that they can navigate bear markets and/or economic downturns with relative ease. This makes Dow stocks something of a safe-haven investment during a bear market.
More importantly, investors can still find incredible deals hiding in plain sight within the Dow Jones Industrial Average. What follows are three Dow stocks that are nothing short of screaming buys in March.
Johnson & Johnson
The first Dow Jones stock that's begging to be bought in March is healthcare conglomerate Johnson & Johnson (JNJ -1.15%). Although legal damages tied to its talc-based baby powder are a short-term overhang for the company, J&J (as Johnson & Johnson is more commonly known) has all the tools and intangibles to deliver for patient investors.
For starters, healthcare stocks are mostly safeguarded against economic downturns. While it would be convenient if we had the luxury of simply not becoming ill during recessions and bear markets, we don't get that choice. People will always require prescription drugs, medical devices, and a variety of healthcare services, no matter how well or poorly the U.S. economy is performing.
On a company-specific level, it's Johnson & Johnson's revenue mix that makes it special. For more than a decade, it's been shifting more of its total sales to pharmaceuticals. Brand-name drugs sport high margins and better near-term growth prospects.
The downside to generating more than half of its net sales from brand-name pharmaceuticals is that brand-name drugs have a finite period of sales exclusivity. To avoid the perils of patent cliffs, J&J is constantly reinvesting in novel research, collaborating with other drug developers, and making acquisitions to expand its pipeline and product portfolio.
Additionally, Johnson & Johnson can unlock value with its other operating segments. Its medical technologies division is a global leader that's well-positioned to take advantage of an aging population. Meanwhile, J&J's coming spinoff of its consumer health products segment (to be known as Kenvue) can help unlock value for shareholders and make the company's operating results a bit easier for investors to wrap their hands around.
Another reason to gobble up shares of J&J is its consistency. It's had just eight CEOs since being founded 137 years ago, has raised its base annual dividend for 60 consecutive years, and is one of only two public companies with Standard & Poor's highest credit rating (AAA) -- Standard & Poor's is a division of S&P Global.
Best of all, Johnson & Johnson is cheaper now -- 14 times forward-year earnings -- than at any point over the past decade, based on Wall Street's earnings consensus.
Verizon Communications
The second Dow Jones industrial Average component that's a screaming buy in March is telecom stock Verizon Communications (VZ -0.68%).
Telecom stocks were a forgotten industry for much of the past decade. With interest rates at or near historic lows, investors favored high-growth companies. But when the you-know-what hits the fan, it's the operating cash-flow consistency of telecom stocks that tends to come out smelling like a rose.
Similar to healthcare stocks, telecom companies are highly defensive. Over multiple decades, wireless/broadband access and owning a smartphone have become basic-necessity goods and services that consumers and businesses simply aren't willing to give up. Even when the U.S. economy and/or stock market weaken, churn rates for Verizon remain near historic lows.
If there's a prevailing catalyst for Verizon this decade, it's the ongoing rollout of 5G. After a decade of 4G LTE download speeds, Verizon and its peers are spending big on 5G infrastructure upgrades. While these improvements won't be completed overnight, they provide a catalyst for consumers and businesses to steadily upgrade their wireless devices now and in the coming years. In other words, it's a recipe for increased data consumption, which is where Verizon generates some of its best operating margins.
However, the story investors might be overlooking with Verizon is the recent surge in broadband net additions. The 416,000 broadband net additions during the fourth quarter represents its fastest growth in more than a decade, and it follows hefty investments in mid-band spectrum in 2021.
While broadband isn't the growth story it was 20 years ago, it's still capable of providing predictable cash flow. More importantly, it's a service that can be used as a hook for bundling, which can improve customer loyalty and operating margin.
If you need one more good reason to trust in Verizon, consider this: It's parsing out a dividend yield that's nearing 7%. That's a little higher than the trailing-12-month rate of inflation in the United States.
With shares of Verizon trading at just 8 times Wall Street's forecast earnings for 2023 and 2024, there looks to be reasonable upside with a safe floor.
Image source: Getty Images.
Walgreens Boots Alliance
The third Dow stock that's a screaming buy in March is pharmacy chain Walgreens Boots Alliance (WBA -1.18%).
Walgreens is an interesting case in that it was a rare exception to the rule I described earlier with healthcare stocks. Since it's heavily reliant on foot traffic into its physical stores, lockdowns during the COVID-19 pandemic ravaged its sales and profits -- at least for a short time. The good news for investors is that these speed bumps have created one heck of a buying opportunity.
For years, Walgreens Boots Alliance has been implementing a variety of strategic initiatives designed to improve its operating efficiency, lift its organic growth, and entice repeat visits. The company's operating results show it's hitting the mark in all three areas.
As you might imagine, improving the company's operating efficiency does involve some cost-cutting. Walgreens slashed more than $2 billion in annual operating expenses, a full year ahead of schedule. But cost-cutting can only move the needle so far.
What's far more exciting is what's happening on the digitization front and with its healthcare-services shift. In terms of the former, Walgreens has invested aggressively in initiatives designed to encourage online ordering, as well as make its supply chains more efficient. Even though its brick-and-mortar locations continue to generate most of its revenue, digital sales have the potential to sustain double-digit growth for the foreseeable future.
As for its healthcare-services shift, Walgreens and VillageMD (Walgreens is a majority stakeholder in VillageMD) have opened 200 full-service health clinics that are co-located at Walgreens' stores. Whereas competing health clinics are often limited to administering vaccines, Walgreens/VillageMD have physician-staffed clinics designed to drive repeat visits. By the end of 2027, the goal is to have 1,000 of these clinics open in over 30 U.S. markets.
Sporting a dividend yield above 5% and a forward-year price-to-earnings ratio below 8, Walgreens stock offers an extremely favorable risk-versus-reward for patient investors.
