The Dow Jones Industrial Average tracks the performance of 30 industry-leading companies. The index recently surged to new highs, but some of its component companies haven't yet recovered from the 2022 bear market and are trading at rock-bottom share prices that could potentially set up a sharp rebound over the next year. Here are two timely buys right now.
1. Verizon Communications
Shares of Verizon Communications (VZ +2.98%) are starting to rebound after tumbling during the 2022 market sell-off. The company has reported strong financial results this year, but the stock's high dividend yield suggests it is undervalued ahead of opportunities to capitalize in 5G wireless and demand for artificial intelligence (AI)-enabled devices.
NYSE: VZ
Key Data Points
Verizon is a dividend investor's dream. The company pays out 59% of its adjusted earnings, bringing the forward yield to 6.28%. High-yield stocks can be sensitive to rising interest rates, but with the Federal Reserve recently announcing a half-point rate cut, it removes some of the downward pressure on top dividend stocks.
Verizon has paid a growing dividend for many years, which stems from consistent revenue and profits the business earns from charging customers every month for wireless service plans. It ended 2023 with 94 million postpaid connections, which refers to billed monthly plans that customers sign up for. Verizon's wireless service revenue accelerated in Q2, increasing by 3.5% year over year to $19.8 billion. The company says it also gained market share in broadband service, with 391,000 net adds last quarter, which exceeded the net customer additions in the first quarter.
Investors are increasingly bullish about Verizon's ability to sustain growth as customers upgrade to 5G wireless plans. Customers could have a strong incentive to upgrade as Apple launches AI-optimized iPhones. Wall Street's long-term earnings estimates are higher than a year ago. The company's high yield and solid financial results could propel Verizon stock higher in 2025.
2. Walt Disney
Walt Disney (DIS +0.54%) is a timeless brand with some of the most valuable entertainment properties in the industry. Previous management missteps give long-term investors a once-in-a-decade buying opportunity. The stock has fallen deeply out of favor on Wall Street over the last few years, reflecting lower-than-expected subscriber gains in Disney+ and weak profitability.
With CEO Bob Iger back at the helm, Disney's finances are in much better shape now. The company's revenue is growing, and most importantly, Disney is driving profitable growth. In the most recent quarter ending in June, earnings per share improved to $1.43, reverting a year-ago loss of $0.25.
NYSE: DIS
Key Data Points
Disney's investments to support content production for its direct-to-consumer (DTC) segment, including streaming services, nearly wiped out the company's net income a few years ago. But the DTC segment is now profitable one quarter ahead of management's original goal.
A key catalyst that could send the stock higher next year are strong subscriber gains in Disney+. Similar to Netflix, Disney is beginning to put an end to unauthorized password sharing and requiring all viewers to pay for a membership. The company expects its password sharing initiative to kick in this fall. Netflix's revenue and subscriber numbers benefited enormously from this effort, and the same could happen for Disney.
Despite clear improvements in the business, the stock still trades at under $100 and a forward price-to-earnings ratio of 18 on fiscal 2025 earnings estimates. Analysts are forecasting long-term earnings growth of 14%. If it meets those expectations, Disney stock could double in value within the next five years.
