Few (if any) indexes command Wall Street's attention quite like the iconic Dow Jones Industrial Average (^DJI -1.43%). The Dow, which recently celebrated its 127th "birthday," is comprised of 30 historically profitable, multinational businesses that have a lengthy history of making their shareholders richer.
Although the Dow Jones found itself entrenched in a bear market along with the other major stock indexes in 2022, it led the pack with a modest loss of less than 9%. When volatility and uncertainty arise on Wall Street -- i.e., a perfect description of the past 17 months -- investors often turn to the mature businesses in the Dow for bargains.
As we steam toward summer, two Dow stocks stand out as screaming buys in June, while another longtime Dow component can be easily avoided.
Image source: Getty Images.
Dow stock No. 1 that's a screaming buy in June: Walt Disney
For opportunistic long-term investors, there's perhaps no better deal in the Dow Jones Industrial Average right now than media stock Walt Disney (DIS -2.20%).
The famed "House of Mouse" has been contending with two well-defined headwinds over the past couple of years. The first is the COVID-19 pandemic, which shut down theme parks globally and significantly reduced its film revenue.
Thankfully, most countries have now abandoned their COVID-19 mitigation measures. This should allow Disney's theme parks and film entertainment division to rebound.
The other notable headwind for Walt Disney has been the losses tied to its streaming segment. Through the first six months of the current fiscal year (Disney's fiscal year ends in late September or early October), the company has lost $1.71 billion from its direct-to-consumer segment, which is 16% more than it lost during the comparable period in fiscal 2022.
But there's good news on this front. Even though Disney+ has seen its total subscriber count fall from 164.2 million to 157.8 million over the first six months of fiscal 2023, it's been able to raise monthly subscription prices. Further, it's introduced a less costly ad-supported tier, which should help the company attract and retain new subscribers. In other words, the segment is taking clear steps to reach profitability, perhaps by as early as the second half of fiscal 2024.
While a loss of subscribers isn't ideal, the 6.4 million subs Disney shed as it raised prices is a drop in the bucket, compared to the 164 million subscribers it gained in the three years following its launch. The rapid ascent of Disney+ demonstrates the power of the Disney brand and the pricing power the company possesses.
As I've stated before, Walt Disney's biggest competitive edge is its storytelling. No other company can duplicate its characters or stories or evoke the engagement or imagination that its characters can. This irreplaceability is what makes Walt Disney such a smart buy after a couple of very rough years.
Dow stock No. 2 that's a screaming buy in June: Walgreens Boots Alliance
The second Dow stock that stands out as a screaming buy in June is none other than pharmacy-chain Walgreens Boots Alliance (WBA -0.34%).
There's no denying that Walgreens' five-year chart is Halloween come early. Shares have been steadily beaten down by two very specific challenges. The first, as you may have guessed, is the COVID-19 pandemic.
Whereas healthcare stocks are generally immune to demand downturns during a recession -- i.e., patients still need prescription medicines and access to healthcare services in any economic environment -- Walgreens was clobbered due to its reliance on physical stores for revenue. During the initial lockdowns, foot traffic into its stores fell considerably.
Skeptics have also been unimpressed by Walgreens' horizontal expansion efforts. In other words, Walgreens' growth came from opening new stores. That compares to CVS Health, which acquired health insurer Aetna in 2018 and expanded vertically into a new revenue channel.
Though it may be late to the party, Walgreens Boots Alliance is expanding into new verticals and shifting its attention to areas that can lead to higher organic growth opportunities. In particular, it has partnered with and become a majority investor in VillageMD.
The duo has opened 210 co-located VillageMD clinics at Walgreens' stores, as of the end of February 2023. These are physician-staffed, full-service clinics that are designed to boost operating margin and drive repeat visits.
Another vertical that Walgreens Boots Alliance is looking to take advantage of is bolstering its direct-to-consumer sales. The pandemic was a wake-up call for Walgreens' management team. They learned that even a brick-and-mortar-based business still needs to invest in tools that can make the buying experience more convenient for consumers. Investing in its online experience and reworking its supply chain are just two ways Walgreens is becoming more efficient.
We've seen Walgreens trim the proverbial fat, as well. It's reduced its annual operating expenses by more than $2 billion, as well as generated billions by selling its wholesale drug segment to AmerisourceBergen.
Though Walgreens Boots Alliance isn't the growth story it once was, a consensus price-to-earnings ratio of 7 in fiscal 2023 doesn't do justice to the cash flow potential of this business.
Image source: Boeing.
The Dow stock to avoid like the plague in June: Boeing
Not all Dow stocks are scorching-hot buys in June. While it's a company that has the potential to deliver for very patient investors, commercial airline manufacturer and defense company Boeing (BA -1.51%) is a stock I'd suggest avoiding.
To reiterate, Boeing isn't a bad business if you're looking out five or 10 years. It's sitting on a total backlog of $411 billion, including more than 4,500 commercial airplanes, and can count on the reliability of payments that comes with supplying aircraft for the U.S. military. Over time, it shouldn't have any trouble returning to profitability.
But as of right now, four clear headwinds should encourage investors to steer clear of Boeing. The first is the growing likelihood that we'll enter a recession at some point within the next 12 months. Historically, Boeing has been an abysmal performer when U.S. economic growth shifts into reverse.
The second issue for Boeing is the Federal Reserve's hawkish monetary policy. While rapidly rising interest rates have been beneficial to banks, they're not particularly good news for companies that have taken on a considerable amount of debt, like Boeing. If and when the company refinances in the future, it could find its interest costs more burdensome.
Thirdly, Boeing is contending with a seemingly never-ending series of operating/parts miscues. Earlier this week, the company announced that a defect with a tail component of its 787 Dreamliner would prevent the certification of new 787s from being delivered, at least for the moment.
This comes after the company halted deliveries of some of its 737 MAX jets in April due to quality issues from one of its key suppliers. Every time Boeing seems to be getting its production line in order, something else derails its path back to being cash-flow positive and profitable.
Lastly, Boeing's valuation is an eyesore in an environment where a recession is possible. After beginning 2023 with Wall Street looking for around $2 in earnings per share, the current consensus has the company losing $1.34/share. That's a swing of nearly $2 billion ($1.2 billion in expected net income to a forecast loss of $800 million).
I believe that Boeing shares can be purchased much cheaper in the second half of 2023.
