Investors can sometimes overcomplicate the process of finding attractive stocks to buy. The main goal is simply to put together a portfolio of great businesses at attractive prices, after all. It's not just to find a hidden gem that no one on Wall Street has noticed.
This is why it can make sense to put some investing focus on underperforming stocks in the Dow Jones Industrial Average. The index is packed with some of the world's most successful companies. These are businesses that have proven their strength through the ups and downs of the economy.
So, let's consider two poor performers on the Dow at the moment that seem primed for a rebound. Read on for some reasons to like Nike (NKE -0.07%) and Coca-Cola (KO 0.25%) stocks right now.
1. Nike will just do it
Nike shares have traded in the red so far in 2023 despite a few encouraging signs about its business. Sure, the footwear industry is still under pressure as consumers scale back on spending in some areas. Sales promotions are popular across the industry, pushing profit margins lower for retailers and manufacturers.
But Nike is faring much better than its peers. Gross profit margin fell by just 1 percentage point last quarter, for example. Compare that to the 4-percentage-point slump reported by Foot Locker. This gap can be partly explained by the fact that Nike has more control over its inventory and the pace of its innovation.
And Nike sales growth has been strong thanks to its global footprint, its booming digital selling channel, and its steady pipeline of new releases. Revenue was up 16% year over year this past quarter after adjusting for currency exchange rate shifts. Best of all, Nike's inventory levels have declined enough to match current demand trends, laying the groundwork for more profitable sales ahead in fiscal 2024.
2. Coca-Cola has the sparkle
Coca-Cola's share price has been moving in the opposite direction of its business in 2023. The stock has declined 4.7% so far in 2023 compared to a 5.6% increase in the Dow. Yet there's every reason to be more excited about Coke's prospects today.
The company raised its 2023 outlook in late July, for example, after organic sales jumped 11% year over year in Q2. Consumers snapped up core beverage brands like Coke Zero while increasingly opting for the company's newer water and energy drinks.
These wins supported a rising profit margin as Coke's operating profit improved to a blazing 32% of sales. "We are executing efficiently and effectively," CEO James Quincey told investors in late July.
The best news is that investors can own a piece of that high-performing business for a relative bargain. Coke stock is valued at less than 6 times annual sales today, down from 6.4 in May.
The consumer staples giant's earnings prospects have improved since then, but its stock price hasn't reflected those gains. And while they wait for the rebound, shareholders can sit back and collect one of the Dow's most generous dividend yields. Coke is paying a dividend yielding 3% at today's prices while Nike stock comes with a dividend yield of roughly 1.2%.
Both businesses are highly likely to set new global sales and earnings records in a few years, giving investors who buy during this slump good reasons to expect market-beating returns over time.