The Dow Jones Industrial Average index, considered a barometer of the health of the U.S. stock markets, recently notched its best-ever streak since 1987, when it rose for 13 straight days through July 26. While macro factors and earnings are driving Dow stocks higher now, the 30 blue-chip stocks in the index are already established, mature companies that have stood the test of time. In fact, S&P Global, which operates the Dow Jones, admits a company into the index only if it has"an excellent reputation, demonstrates sustained growth, and is of interest to a large number of investors."
Some of the Dow stocks look set to soar in 2023 and beyond, like the three we'll discuss here.
This big move should pay off
Johnson & Johnson (JNJ -0.46%) is transforming, and it's the transformation that could propel this Dow stock higher in 2023 and beyond.
Until a couple of months ago, Johnson & Johnson was making and selling medicinal drugs, medical equipment, and consumer products under brands including Band-Aid, Neutrogena, and Listerine. Hiving off those iconic and globally loved brands may sound like a foolish move, but that's what the company just did.
Johnson & Johnson has listed its consumer health business as a separate entity called Kenvue (KVUE -0.84%) in a bid to become a healthcare pure play and boost shareholder returns. That's because despite big brands, consumer healthcare was a cyclical, low-margin business that often stifled Johnson & Johnson's earnings power. The company is now also trying to split off at least 80% of Kenvue shares through an exchange offer to shareholders.
As management recently put it, Johnson & Johnson is now "entering a new era" with a focus on pharmaceutical medtech growth while maintaining its position as the "world's largest, most diversified healthcare products company." Between pharmaceuticals and medical devices, there are 25 products or platforms that generate more than $1 billion in annual sales each.
Johnson & Johnson has a solid pipeline in oncology, cardiovascular health, and eye health. It's confident of generating $57 billion in sales from pharmaceuticals alone by 2025, versus around $53 billion in 2022. And it recently increased its dividend for the 61st consecutive year. For all we know, this Dow stock's new phase of growth may have only just begun.
This cash machine is a no-brainer Dow stock right now
Visa (V -0.23%) is the kind of Dow stock that may not soar overnight but could absolutely crush the markets over a period of time. This is an asset-light business with solid earnings power, huge margins, and massive growth opportunities in the global shift from cash to credit cards, debit cards, and other modes of digital payments. Visa is one of the largest payment processors, facilitating transactions among consumers, merchants, financial institutions, and government entities around the globe. The fintech giant is already making good money from the global cash-to-cashless shift, as is evident in its latest numbers.
Visa's revenue jumped 12% to $8 billion in its third quarter (its financial year ends Sept. 30), driven by 10% growth in payments volume. Visa processed transactions worth $54 billion in Q3, with debit cards driving the growth, and generated a 62% operating margin.
A good quarter is nothing new to Visa, though. It has consistently delivered strong numbers and grown steadily, which pretty much explains why the stock has generated such humongous returns for shareholders over the decades.
Visa expects payment volumes to rise further in the fourth quarter and drive revenue higher by 10%. Meeting these estimates would mean Visa will end fiscal 2023 with double-digit growth in revenue growth and mid-teens growth in earnings per share. With that kind of growth consistency, there's no reason Visa stock shouldn't rally higher in 2023 and beyond.
Some are betting on higher oil prices
Chevron (CVX 0.37%) is the only energy stock in the Dow Jones Industrial Average index. It's also one of the only two oil and gas stocks that have increased dividends for at least 25 consecutive years. That streak speaks volumes about Chevron's resilience despite being a cyclical stock.
This year hasn't been a great one for the Dow stock so far, but it could rally in 2023 and beyond, since low oil prices aren't really hurting Chevron's numbers.
As its preliminary second-quarter numbers show, Chevron generated $6.3 billion in cash flow from operations in the quarter, or down just about 12% sequentially despite much weaker crude oil prices. Chevron's production in the Permian Basin jumped 11% to a record high in Q2. Above all, Chevron distributed a record $7.2 billion to shareholders in Q2 in the form of dividends and share repurchases. In short, Chevron remains undeterred amid a volatile oil-price environment thanks to its fortress-like balance sheet.
Chevron is about to acquire PDC Energy in the coming weeks, a move that should be accretive to its reserves and cash flows. It's already targeting average annual free cash flow growth of more than 10% and a return on capital employed of at least 12% by 2027, at a Brent crude price of only $60 per barrel.
With industry experts betting on higher oil prices in the second half of 2023 on the back of resilient demand and tight production from the OPEC+ nations, this top-quality Warren Buffett Dow stock could be among the first to rally.
