While the tech-focused Nasdaq Composite has jumped 29% year to date, the blue chip-heavy Dow Jones Industrial Average has managed just a 2.4% rebound this year. As the Dow's performance suggests, there are plenty of dominant companies still trading at attractive valuations that could lead to strong returns.
Buying great companies at fair valuations is a reliable strategy to build wealth. The following stocks would make great buys before the next bull market is officially underway.
1. Salesforce
After a brutal market correction last year, shares of the leading customer relationship management platform have rebounded 60% in the first half of 2023. Salesforce (CRM 0.42%) provides software applications that allow employees to work more efficiently, manage sales leads, and make better business decisions.
Investors were looking at a bargain opportunity when the stock fell with the broader market over macroeconomic uncertainty. Some of the drop might have look justified to Wall Street, since Salesforce was reporting slowing revenue growth on top of weak profitability. But given management's focus on growing free cash flow and the long-term opportunity in the CRM market, the stock is a still a solid buy, even at these higher share prices.
The CRM market is expected to grow 12% per year to reach $157 billion by 2030, according to Fortune Business Insights. Consistent with that forecast, Salesforce has been growing at high rates for many years. The size of the opportunity ahead should allow the company to sustain double-digit revenue growth, especially as it rolls out new features powered by artificial intelligence (AI).
Salesforce is introducing AI capabilities through its Einstein AI platform. Einstein processes large amounts of data to deliver insights that businesses can use to grow sales and boost performance.
The company is looking to infuse generative AI capabilities across its various applications, which could boost demand for Salesforce's software in the years to come.
Prospects for growing revenue over the next decade look solid, and Salesforce sweetens the pot for investors by showing it can also improve margins. Management raised its full-year adjusted operating margin guidance to 28% in the most recent earnings report. With the stock trading at a price-to-sales ratio of 6.6, below its 10-year average, the market could be significantly undervaluing the company's future growth.
2. 3M
Another Dow stock that could be a rewarding investment over the next decade is the maker of Scotch tape and other household staples. 3M (MMM 0.46%) has been around for nearly a century, growing revenues and paying dividends to shareholders. The stock has plunged to its cheapest valuation in several years over a legal issue with one of its subsidiaries, but the company's long-term competitive advantage built on market leadership and brand power is still intact.
3M's Aearo Technologies subsidiary was accused of supplying defective earplugs to the military, where the company faces the risk of paying out billions of dollars in settlements. The legal issues, on top of the uncertainties in demand for its products in the weakened economy last year, sent the stock tumbling to levels it hasn't seen in a decade. The eventual settlement in this case should be a relief to investors since it will free the company from the uncertainty hanging over the stock right now.
3M is known for developing new products through its growing stream of investment in research and development (R&D). It holds patents and trademarks across a large portfolio of products, which has led to decades of revenue growth and shareholder returns.
Data by YCharts
3M should also emerge a stronger business over the next several years. Management has been reducing costs and streamlining operations, which could lead to faster product development and higher revenues and profits.
The stock is unbelievably cheap at a forward price-to-earnings ratio under 12, which is a significant discount to the Dow's overall multiple of about 18.
