The Dow Jones Industrial Average has become a conversation starter. Is it going up? Is it going down? Have you seen what the Dow is doing today? For market watchers, professional or casual, the Dow is often the index to discuss.
Yet, for all its name recognition, the Dow is pretty small as far as indexes go. It's made up of only 30 stocks -- and all of them are large or mega-cap companies.
So, let's have a look at three that are poised to lead the index -- and maybe the whole market -- higher over the next few years.
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Visa
Simply put, Visa (V 0.33%) has been one of the best stocks to own over the last decade -- thanks to its simple and lucrative business model.
The company generates revenue by charging a fee for each transaction processed on its network. Given the huge scale of Visa's network, those transaction fees add up.
For example, Visa processed over $50 billion in transactions in its most recent quarter (the three months ending on March 30, 2023). From this enormous pool of transactions, Visa charges service, processing, and foreign exchange fees that totaled just under $8 billion in the quarter.
This massive -- and recurring -- revenue stream makes Visa an appealing business and explains why investors can't get enough of the stock.
However, Visa shares do come at a cost. With an expensive price-to-earnings multiple of 30, Visa's stock won't fit every investment portfolio well.
Nevertheless, with so many merchants, consumers, and financial institutions already committed to its sprawling network, Visa is a name I want to own now and for years to come.
McDonald's
Everyone knows McDonald's (MCD -0.05%); most of us have visited one at some point. Yet many investors might overlook the appeal of the company's stock. There are, however, good reasons for every investor to find a spot for McDonald's in their portfolio.
Let's start with this: McDonald's is an iconic brand with a global footprint. That gives the company tremendous reach and partially insulates it from the ups and downs of the American economy.
Second, McDonald's is one of the best-run companies around. Consider this: Over the last 10 years, McDonald's has grown its operating margin by more than 15%. That's impressive, particularly for a company of its size. Moreover, it demonstrates that management can squeeze value out of the brand -- even as revenue has declined by about 16% over the same period.
To add a cherry on top, McDonald's pays a $6.08-per-share dividend, or a 2.1% yield. What's more, McDonald's has raised its dividend every year dating back to 1976. That sort of multidecade streak isn't easy to find, and it's another reason to find a spot in your portfolio for this fast-food behemoth.
Microsoft
Finally, my top Dow pick should come as no surprise: It has to be Microsoft (MSFT 0.37%). The company today reminds me of a monster truck revving its engine, just waiting for the signal to peel off the line, take flight, and crush the unsuspecting salvage vehicles lined up ahead.
Remember, Microsoft is already a juggernaut, with a market cap of well over $2 trillion. And it has a history of ushering in massive technological change: It revolutionized personal computing in the '80s and '90s. It reinvented itself as a cloud computing company over the last 10 years. Now, the company will likely lead the way in artificial intelligence (AI).
Its partnership with OpenAI gives it a huge advantage in both technical expertise and branding; its cloud computing infrastructure lends existing processing power. Moreover, Microsoft can quickly capitalize on key AI breakthroughs by integrating them into popular products like Microsoft Windows, Office, Bing, Xbox, and LinkedIn.
At any rate, Microsoft is likely to keep growing well into the future. Analysts expect 7% sales growth in 2023 and 11% in 2024. The Microsoft era continues to roll on, making it a no-brainer Dow stock to own.
