Stocks have staged an impressive recovery after a disappointing year in 2022. After falling into the depths of a bear market, the S&P 500 index has rallied back 31%. Meanwhile, the Dow Jones Industrial Average, which tracks 30 of the largest companies in the U.S. and is one of the oldest stock market indexes in the world, has gained 26% and sits just 2.3% below its all-time high from January 2022.
The strong performance in stocks has many optimistic that we're in a new bull market, and for good reason. Since 1929, the average bull market has lasted 3.5 times longer than an average bear market, proving that time in the market beats timing the market. With that said, here are three Dow stocks you can buy and hold for the long haul.
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1. Visa's robust network makes it an excellent long-term performer
When it comes to long-term investing, investors want to see a company with a strong competitive advantage that allows them to maintain market share over competitors. Visa (V +1.65%) has one of the most robust advantages over its competitors thanks to the strong network effects that make it the largest payment processor in the world.
NYSE: V
Key Data Points
In 2022, Visa's network handled $14 trillion in total volume across over 260 billion transactions. Mastercard, its next closest competitor, handled $8 trillion in volume across 150 billion transactions.
Visa has had 65 years to build up its merchant and customer base, creating a feedback loop that attracts more merchants and customers and further strengthens its network effects. As it scales up and increases cash flows, it has more money to reinvest in the business, enhance security features, and reward shareholders through dividends and stock buybacks.
The credit card processor is also highly efficient at generating profits. Over the last decade, Visa's average profit margin is a stellar 47%. During that same time, its free cash flow per share has grown 255%, or 13.5% annually.
Visa is an excellent company that dominates its space and enjoys healthy profit margins and cash flows -- making it an outstanding stock to buy and hold long-term.
2. American Express' strong brand gives it a resilient customer base
American Express (AXP +3.23%) operates the third-largest payment network, processing $1.5 billion in total volume across 10 billion transactions. While it earns fees through its payment network, American Express differs from Visa and Mastercard because it holds loans on its balance sheet, helping it generate interest income.
NYSE: AXP
Key Data Points
Holding on to credit card loans can be risky, especially during economic turbulence when there is an uptick in delinquency rates. What makes American Express stand out is its resilient customer base, which it attracts thanks to its strong brand.
Customers are drawn to American Express because they associate it with luxury. The company has done an excellent job of branding through its exclusive card products that offer luxurious benefits and has forged partnerships with luxury brands and retailers to reinforce that perception further.
American Express' loan portfolio could make it more vulnerable than Visa in a downturn, but the company should be able to hold up better than competitors who also hold loans. In the third quarter, the net write-off rate on its credit card loans was 2.2%, well below the industry average of 3.8%.
American Express' strong brand and resilient customer base make this another excellent Dow stock to include in your portfolio today.
3. Chevron's balanced business model provides reliable cash flows
Chevron (CVX +1.71%) operates in the oil and gas industry, which, as a whole, can experience volatility depending on oil prices. However, what makes Chevron an appealing stock is its business model that balances upstream and downstream operations to generate consistent cash flows.
NYSE: CVX
Key Data Points
Upstream operations include exploring, producing, and transporting crude oil and natural gas. This business benefits from higher oil prices and can be an excellent source of income when oil prices are high. However, income from this segment can fluctuate widely depending on conditions in the oil and gas markets.
Downstream operations include refining crude oil into petroleum, transporting products through pipelines, and running gas stations across the globe. Chevron's downstream operations provide it with a more stable source of income and can help smooth out volatile earnings due to fluctuating oil prices.
The company also plans to invest $10 billion in lower-carbon opportunities through 2028, and last year, it invested over $3 billion to acquire Renewable Fuels Group -- making it the second-largest bio-renewable diesel producer in the U.S.
Chevron has raised its dividend payout to investors for 36 consecutive years, a testament to its balanced business model and robust cash flows -- making it another solid stock to own for the long haul.
