The stock market is comprised of thousands of publicly traded companies and north of 3,000 exchange-traded funds (ETFs). But for more than 125 years, the Dow Jones Industrial Average (^DJI +0.83%) has been Wall Street's most-watched index.
At its official inception in May 1896, the Dow Jones was composed of a dozen predominantly industrial stocks. Today, it's a 30-component index packed with historically profitable, time-tested, brand-name businesses that have multinational appeal. In other words, it tends to be a stomping ground where investors of all walks can start their searches for foundational long-term holdings.
Image source: Getty Images.
Although the Dow has a history of heading substantially higher over long periods, the outlook for its individual components can vary greatly. As we work our way into the heart of spring, two Dow stocks stand out as no-brainer buys in April, while another longtime constituent can be avoided like the plague.
Dow stock No. 1 that's a no-brainer buy in April: Visa
The first Dow Jones stock that stands head-and-shoulders above its peers as a seemingly surefire buy in April is payment-processing company Visa (V +0.92%).
The only significant headwind current and prospective Visa shareholders should be mindful of in 2024 is the potential for a U.S. recession. A select group of indicators, including a notable decline in M2 money supply, suggest a heightened likelihood of an economic downturn in the not-too-distant future. When the U.S. economy slows down or contracts, consumers and businesses tend to spend less. That's not good news for a company like Visa that generates its revenue from merchant fees on transactions.
NYSE: V
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But there's a counter to this skepticism that's made patient investors considerably richer. Although recessions are a normal and unavoidable aspect of the economic cycle, they don't last long. Only three of the one dozen recessions in the U.S. since the end of World War II have stuck around for 12 months, with none surpassing 18 months. The U.S. and global economy spend a disproportionate amount of time expanding, which is favorable to Visa's operating model.
Speaking of things that are favorable, Visa is the undisputed market-share leader in credit card network purchase volume in the U.S., the world's No. 1 market for consumption. In fact, it's the only payment processor to gain a meaningful share following the Great Recession.
There's a lengthy opportunity for Visa to expand its reach into faster-growing emerging markets. Regions that remain underbanked, such as Southeastern Asia, Africa, and the Middle East, are ripe for disruption. Visa can enter these regions with its payment infrastructure organically or via acquisition and power its sales growth for decades to come.
If you need one more solid reason to buy into the Visa growth story, let it be the company's laser focus on payment facilitation. Though some of its peers also act as lenders and collect interest income, Visa's choice to steer clear of lending means it doesn't have to set aside capital to cover potential loan losses when economic downturns occur. Visa's flexible balance sheet and purposeful lending avoidance have helped it sustain a profit margin of greater than 50%.
NYSE: KO
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Dow stock No. 2 that's a no-brainer buy in April: Coca-Cola
A second Dow stock that makes for a phenomenal buy in April is none other than leading beverage company Coca-Cola (KO +0.59%).
The reason Coca-Cola stock has badly lagged the gains of the major stock indexes (including the Dow) is simple: It's a mature business. During bull markets, it's not uncommon for investors to chase after higher-growth companies.
This has made Coke somewhat of an afterthought for the investment community. But forgetting about this time-tested company would be a mistake.
One factor Coca-Cola always has in its corner is that it's a consumer staples stock. Though consumer spending habits will shift depending on the health of the U.S. and global economy, things like food and beverages will be purchased in any economic climate. Since Coke provides a basic necessity good (beverages), its cash flow tends to be predictable and transparent year after year.
Something else that continues to work in Coca-Cola's favor is its virtually unparalleled geographic diversity. Except for North Korea, Cuba, and Russia (the latter is due to its invasion of Ukraine), it has ongoing operations in every country. This means it can take advantage of faster-growing emerging markets, while also generating predictable cash flow from developed countries. Coca-Cola has more than two dozen brands in its product portfolio generating at least $1 billion in annual sales.
Coca-Cola's marketing team deserves credit for its continued success, too. Last year, the company highlighted that it was spending north of 50% of its advertising budget on digital channels, as well as leaning on artificial intelligence (AI) to help tailor ads to individual consumers. But this is a company with more than a century of history in its back pocket. It regularly leans on its storied history to connect with more mature audiences.
Although Coca-Cola stock isn't going to double in a matter of months like some hypergrowth tech stocks, it delivers steady growth with minimal volatility -- it's about 41% less volatile than the benchmark S&P 500 -- and has increased its dividend in each of the past 62 years. Further, shares can be purchased for less than 20 times forward-year earnings, which represents a 15% discount to its trailing-five-year forward-earnings multiple.
Image source: Boeing.
The Dow Jones Industrial Average stock to avoid like the plague in April: Boeing
On the other hand, not every Dow stock is going to be a winner. While an argument can be made that it's already taken its fair share of lumps in 2024, commercial airplane manufacturer and defense company Boeing (BA +1.71%) tops the list of Dow components to avoid like the plague.
Heading into 2024, Boeing was the top Dow component I highlighted to avoid. At the time, an even greater number of money-based metrics and predictive indicators were forecasting a high probability of a U.S. recession. Despite its hefty backlog of commercial orders, Boeing has historically been one of the worst-performing S&P 500 components during recessions. My expectation was that it would remain grounded if the U.S. economy cooled off or shifted into reverse.
Since the year began, Boeing has been clobbered by an assortment of missteps tied to its MAX jetliners. The most glaring of these incidences occurred in early January when a piece of fuselage on a 737 MAX 9 jetliner ripped out mid-flight. Boeing has admitted its fault in the incident and will need to clean up its production process to regain the trust of travelers and its customers.
NYSE: BA
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Furthermore, Boeing CEO David Calhoun announced that he'd be stepping down from his post by the end of 2024. While a shake-up in the executive suite has been long overdue at Boeing, changes in leadership result in uncertainty. Wall Street isn't a fan of uncertainty, and Boeing's stock price shows it.
Federal Reserve monetary policy represents another potential hurdle for Boeing. The fastest rate-hiking cycle in four decades is a threat to the company on two fronts. First, it took on a significant amount of debt during the COVID-19 pandemic, which may make future refinancing costlier. The other issue is that higher interest rates may discourage airlines from making large purchases and updating their fleets.
Lastly, Boeing hasn't demonstrated an ability to stay on course with regard to profits or monthly production forecasts. Toward the tail-end of 2022, Wall Street pegged Boeing for a modest per-share profit in 2023. The company went on to lose $5.81 per share last year.
Likewise, Boeing was expected to earn over $5 per share in 2024. This estimate has since been pared down to a loss of $0.71 per share. Until Boeing actually delivers, it's a company worth avoiding.
