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 -0.62%) 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.
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 1.82%) 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.
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 1.17%) has held the Dow Jones back in 2023. Shares of the telecommunications company are down close to 5% this year.
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.
