Different investors mark the beginning of a new bull market in slightly different ways. In my view, a new bull market begins when two criteria are met. First, an index must have rebounded at least 20% from recent bear market lows. Second, it must set a new all-time high.
The S&P 500 has met the first threshold but hasn't quite achieved the second one. There's better news, though, for the widely followed Dow Jones Industrial Average. A new bull market is here for the Dow Jones. Here are the three best Dow stocks to buy for 2024, listed in alphabetical order.
1. American Express
American Express (AXP +0.50%) was added to the Dow Jones in 1982, making it one of the index's five longest members. The company is a giant in the financial services industry, providing global credit-card payment-processing services.
The Dow's performance has been helped quite a bit by American Express in 2023. Amex stock has soared more than 20% year to date, with the company's third-quarter update providing a nice catalyst.
NYSE: AXP
Key Data Points
Amex reported its sixth consecutive quarter of record revenue in Q3. Its earnings per share jumped 34% year over year to a record high, as well. With the U.S. economy seemingly in a good position to continue chugging along, American Express should be able to keep its momentum going in 2024.
Even after delivering solid gains this year, American Express shares trade at a forward price-to-earnings ratio of only around 14.5. That's a much more attractive valuation than fellow Dow Jones member and top credit-card rival Visa. I think the stock should have plenty of room to run in the new year.
2. Microsoft
It's possible that the Dow Jones could enjoy a strong bull market without Microsoft (MSFT 1.51%) performing well. However, I think it's unlikely. Microsoft makes up more than 6.5% of the index, ranking behind only UnitedHealth Group and Goldman Sachs.
Microsoft has been sizzling hot in 2023, with its shares skyrocketing more than 50%. The company has been a big beneficiary of the explosion of interest in generative AI, thanks to its partnership with and large stake in ChatGPT creator OpenAI.
NASDAQ: MSFT
Key Data Points
Some might worry that the party could soon be over for Microsoft. After all, its stock now trades at a forward earnings multiple of 33, which reflects a premium valuation. However, the generative AI boom should provide a major tailwind for the company for years to come.
I also like that Microsoft is well-positioned in several other hot technology areas. The company is now even more of a force in the gaming market with its acquisition of Activision Blizzard. It's a top cloud services provider and cybersecurity leader. It's also one of a handful of companies at the forefront of quantum-computing research.
3. Verizon Communications
Unlike American Express and Microsoft, Verizon Communications (VZ +2.07%) has held the Dow Jones back in 2023. Shares of the telecommunications company are down close to 5% this year.
NYSE: VZ
Key Data Points
There's more to the story, though. Verizon stock had fallen more than 20% year to date, as of early October. But it began a big comeback later in the month, thanks to strong Q3 results.
Verizon beat Wall Street earnings estimates. Its year-to-date free cash flow improved by $2.2 billion year over year, enough to prompt the company to raise its full-year free-cash-flow guidance.
Things are looking up for Verizon. Value investors could find the stock especially attractive since its shares trade at only 8x expected earnings.
Income investors have a lot to like about Verizon, too, with a dividend yield that currently stands at 7.1%. The company has increased its dividend for 17 consecutive years. With the company generating more free cash flow, I expect this streak of dividend hikes will continue in 2024.
