This is a tricky time for investors. Most people agree that valuations have reached alarmingly high levels. Yet, the market is still moving higher, largely led by the same growthy tech stocks that have been leading it for some time now. Many investors are shrugging off their steep valuations and diving into this aging rally's biggest winners anyway, motivated by the fear of missing out on any continued gains.
Savvy investors, however, know this plan comes with too much risk and not enough reward. The smart money is rightfully looking for blue chip prospects outside of the artificial intelligence (AI)-driven mania that may have underperformed of late, but offer greater long-term upside. And in some cases, this upside is likely to begin materializing in the latter half of this year, once the market comes to grips with the fact that not all of the recent winners deserve to hold on to their big gains.
To this end, here's a closer look at three Dow Jones Industrial Average stocks that you might want to consider stepping into specifically because they're not caught up in the bullish mania.
Image source: Getty Images.
1. Apple
It's true. iPhone maker Apple (AAPL 0.07%) botched its chance to make a big splash on the consumer-facing artificial intelligence scene. Its highly touted Apple Intelligence platform that launched in October was introduced without several features its loyal customers were expecting, for instance. And the tech is only available to owners of its very newest iPhones anyway -- the iPhone 15 and earlier (which is the vast majority of its actively used base of devices) can't actually run Apple Intelligence.
Meanwhile, the updated version of Apple's digital assistant Siri has proven to be a flop, resulting in a major management shakeup and a "back to the drawing board" decision that means Siri's intended big leap won't be ready for relaunch until early next year.This very un-Apple-esque saga is the chief reason Apple shares have struggled since late last year.
One of the most interesting aspects of investing, however, is that stocks are backward-looking right up until they're forward-looking again, and start reflecting the likely future rather than the recent past. Given Apple's acknowledgement of its AI misfires and the company's efforts to fix them, there's every reason to hope that what was supposed to happen this year is still going to happen. It's just going to happen next year.
That's the contrarian argument from Fundstrat Capital analyst Tom Lee. While he acknowledges Apple's current challenges, in a recent interview with CNBC, he also said of the company's artificial intelligence developmental efforts, "For me, Apple has been sort of quietly ready to pounce on AI... So, I think Apple is going to surprise people."
A little more time will also allow for the release of another wave of iPhones capable of handling the onboard AI duties that Apple Intelligence requires.
And the crowd seems to be slowly coming around to Lee's way of thinking. The stock's relatively slow, measured recovery from April's low appears to be picking up steam as Apple's AI work moves into clearer view. Yet, there's plenty of room for shares to continue marching higher even before revisiting December's peak.
2. Walmart
Walmart (WMT 0.93%) shares served up a rock star performance in 2024, rallying more than 70% during the 12-month stretch on progress that most investors didn't seem to expect. But there's been little follow-up. The stock's barely above where it ended last year, and has merely moved sideways since May. The market appears to just be waiting for the next catalytic headline.
That may ultimately be a mistake, however.
See, the time to step into a stock isn't when everybody is buying it in the midst of a news-driven rally. The time to step in is in the calm before the storm, on faith that the bullish news is coming.
And it's certainly not like there's reason to believe Walmart won't be providing these catalysts. Take its fiscal first quarter's results as an example. Despite the lethargic economy (domestic as well as global), Walmart managed respectable top-line growth of 2.5%, or sales growth of 4.4% on a constant-currency basis. Meanwhile, same-store sales within the U.S. improved to the tune of 4.5% year over year, while operating income grew 3%.
These aren't huge numbers. But, for the world's biggest retailer that's limited by its sheer size in an environment that's also been rattled by tariffs, this is solid growth.
The thing is, it's not just the retailer's most basic results that investors will likely appreciate when other companies from other industries start running into cyclical and valuation headwinds in the foreseeable future. The market's just as likely -- if not more likely -- to latch onto one of the other impressive metrics Walmart is now regularly reporting.
Take Walmart.com's advertising business as an example. After growing 27% to $4.4 billion last year, it soared by double-digits again in Q1. The company's e-commerce arm also experienced 22% worldwide growth during the first quarter, boosted by deliveries to the growing number of Walmart+ subscribers.
The point is, in an environment that's supposed to be tough, Walmart is making it look pretty easy. The market should start seeing and rewarding this again soon enough.
3. Johnson & Johnson
Finally, add Johnson & Johnson (JNJ -0.74%) to your list of Dow Jones stocks that could soar in 2025 and beyond.
J&J was, of course, one of the market's hottest stocks during and because of the COVID-19 pandemic. Its Jcovden vaccine was one of the few that could be made ready en masse quickly enough to matter, driving more than $2 billion worth of revenue in 2021 -- a feat almost repeated in 2022 before the need for the vaccine effectively ended in 2023.
In retrospect, though, the scope of the pandemic-prompted rally never quite made sense. Jcovden was never a major breadwinner. Meanwhile, to the extent the pharmaceutical giant needed something to offset the coronavirus vaccine's waning revenue as well as Remicade's, Simponi's, and blood-cancer-fighting Imbruvica's slight-but-persistent sales declines, it just didn't have it. That's why Johnson & Johnson shares have been more misses than hits since 2022.
There's a reason, however, this pharmaceutical stock is finally starting to make higher highs and higher lows again. That is, there's hope on the horizon.
In simplest terms, Johnson & Johnson is going all-in on the oncology front. It's not only invested a great deal of money in developing its own cancer drugs, but has spent billions to acquire promising cancer-fighting prospects like Ambrx Biopharma's ARX517, an antibody drug conjugate (or ADC) aimed at prostate cancer. Johnson & Johnson is looking to build a deep and wide portfolio of ADC cancer drugs, in fact, with its senior director of oncology innovation, Stefan Hart, plainly stating late last year, "J&J's growing pipeline of ADC therapeutics and external collaboration efforts reflect our investment and confidence in the future of the ADC space."
And investors may not have to wait much longer to see the fruits of this labor and investment, either. The company contends its oncology business will be worth $50 billion per year by 2030, versus last year's cancer-related revenue of just over $20 billion and its total top line of just under $90 billion.
JNJ stock will of course reward progress made toward this goal in the meantime.
