For nearly 128 years, the iconic Dow Jones Industrial Average (^DJI 0.26%) has served as one of the premier barometers of Wall Street's health. Since its official debut on May 26, 1896, it's evolved from a 12-component index that catered heavily to industrial stocks into a 30-stock index packed with diverse, time-tested, multinational businesses.
Although the Dow Jones is very much in a new bull market -- the index closed less than 200 points shy of 40,000 on March 28 -- it's retraced by almost 5% over the last five weeks. For opportunistic long-term investors, it means bargains abound.
As we leap into May, three Dow stocks stand out as no-brainer buys.
Image source: Getty Images.
Chevron
The first seemingly surefire buy in the Dow Jones Industrial Average in May is none other than energy titan Chevron (CVX +0.00%). Although shares of Chevron are down 5% over the trailing-12-months, the company is better-positioned to grow over the long run than it was a year ago.
Macro factors are undeniably working in Chevron's favor. During the COVID-19 pandemic, global energy majors (including Chevron) were forced to significantly pare back their spending due to historic demand uncertainty. Even with capital expenditures now ramping up, the worldwide supply of crude oil remains constrained. The law of supply and demand notes that if demand for a good or service outweighs its supply, the price of that good or service is going to climb.
NYSE: CVX
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Though Chevron's drilling operations will benefit immensely from a sustained higher spot price for crude oil, don't overlook that it's an integrated energy company. Chevron generates more of its revenue, collectively, from its midstream (transmission pipelines) and downstream operations (chemical plants and refineries) than it does from drilling. These other segments provide an ideal hedge for Chevron in the event that the spot price of crude declines.
Chevron's pending acquisition of Hess is another growth catalyst that would be a mistake to ignore. Assuming the all-share $53 billion deal closes as planned, Chevron will get its proverbial hands on 465,000 acres in the oil-rich Bakken Shale, and will be adding substantial oil-equivalent production in Guyana to its already vast portfolio.
The company's balance sheet can put skeptics at ease, as well. Chevron closed out March with a net-debt ratio of just 8.8%, which affords it exceptional financial flexibility. Having a top-notch balance sheet has given Chevron's board the confidence to raise its dividend for 37 consecutive years, as well as approve a $75 billion share buyback program.
Valued at 11 times forecast earnings per share (EPS) in 2025, Chevron stock is currently trading at a 23% discount to its average forward-year earnings multiple over the last five years.
NASDAQ: AMZN
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Amazon
A second Dow Jones stock that's a no-brainer buy for opportunistic investors in May is e-commerce leader Amazon (AMZN 0.87%). Amazon was added to the Dow a little over two months ago.
When most people think about Amazon, the company's globally dominant online marketplace comes to mind. Last year, Amazon was estimated to have brought in almost 38% of online retail sales in the United States. But while this segment generates a lot of revenue for Amazon, e-commerce plays a minimal role in its cash flow generation and profitability.
The three segments that make Amazon magnificent from an operating and investment standpoint are Amazon Web Services (AWS), subscription services, and advertising services.
AWS is the top cloud infrastructure service platform in the world, with an estimated 31% share of global spend in the September-ended quarter, according to tech-analysis firm Canalys. Enterprise cloud spending is still in its early innings, which means the more than $100 billion in annual run-rate sales AWS is currently pacing is truly the tip of the iceberg. Despite accounting for only 17.5% of net sales in the March-ended quarter, AWS and its considerably higher margins generated 61.5% of Amazon's quarterly operating income.
Subscription services, such as Prime, provide another source of steady double-digit growth. Prime surpassed 200 million global subscribers in April 2021 and has likely added to this figure since securing the exclusive streaming rights to Thursday Night Football. Football is the most-watched sport in the U.S. by a mile!
Lastly, Amazon is capitalizing on the more than 2 billion visitors it draws to its site each month. Advertising services revenue jumped by 24% on a constant-currency basis in the March-ended quarter and has continued a streak of 20%-plus year-over-year growth dating back two years.
At the end of the day, Amazon is a cash flow machine. Whereas investors regularly paid a multiple of 23 to 37 times cash flow to own shares of this juggernaut throughout the 2010s, long-term-minded growth seekers can scoop up shares of Amazon right now for about 12 times consensus cash flow estimates in 2025.
Image source: Getty Images.
Intel
The third Dow stock that makes for a no-brainer buy in May is beaten-down semiconductor stalwart Intel (INTC +1.14%).
Unlike Chevron and Amazon, Intel isn't firing on all cylinders right now. Its bottom line is being weighed down by weaker demand for personal computers (PCs) and expansive losses from its Foundry Services segment. History tells us that turnarounds in semiconductor stocks often take years.
On the other hand, there are a number of identifiable catalysts that suggest the pessimism surrounding Intel has become excessive.
NASDAQ: INTC
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For example, Intel's central processing unit (CPU) share in PCs and data centers has been under pressure for years. Core rival Advanced Micro Devices has been siphoning away share in PCs. Despite these losses, Intel still absolutely dominates in PC and traditional data center CPU market share. Even though these segments aren't the growth story they once were, they're providing Intel with bountiful operating cash flow that it can use to reinvest in other high-growth initiatives.
Intel isn't sitting on its laurels when it comes to artificial intelligence (AI) innovation, either. It recently unveiled its Gaudi 3 AI-accelerator chip that'll be going head-to-head with Nvidia's market-leading H100 graphics processing unit (GPU). Considering how scarce high-powered GPUs were in 2023, Gaudi 3 should be in high demand for businesses looking to train large language models and run generative AI solutions.
Although building its Foundry Services segment from the ground up isn't cheap, this looks to be the trough year for Intel's chip fabrication operations. Intel has the tools to become the world's No. 2 foundry services provider by the turn of the decade.
With Intel's EPS expected to nearly quadruple by 2027 to north of $4, now looks like the perfect time for long-term-minded investors to pounce.
