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Are 2013's Best Dow Stocks Buys?

By Dan Carroll - Apr 12, 2013 at 2:33PM

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Pfizer, Disney, and HP have all risen sharply this year, but not all are worth your money.

The Dow Jones Industrial Average (^DJI 0.60%) has been on a tear this year. The blue-chip index has risen more than 10% in 2013, rewarding investors with spectacular gains as the economy continues to rise from the depths of the recession. However, several of the Dow's stocks have eclipsed the index's gains, leading the market's rise to new highs. Should you buy the gains made by the Dow's three best stocks in 2013, or are these highfliers ready for a tumble?

Pfizer (PFE 0.56%) has roared up the charts this year, gaining more than 18% year to date. The company has managed to beat back fears over declining revenue stemming from patent expirations on top drugs, such as cholesterol-fighting Lipitor. The company kicked off its 2013 run a little early when blood-thinning therapy Eliquis won FDA approval in the final days of 2012; since then, Pfizer has won expanded FDA approval for a new indication for vaccine Prevnar 13 and Japanese regulatory approval for arthritis medication Xeljanz.

Are these victories enough to justify the stock's gains? Pfizer has proven so far that it won't let the patent cliff threaten its future. Between its smart management decisions -- such as spinning off former animal-health business -- and its massive, promising pipeline, this company is well-positioned for the future. Growth investors received an added boost recently when the FDA labeled Pfizer's developmental breast-cancer therapy palbociclib as a breakthrough therapy, setting the drug up for a speedier approval process. With palbociclib estimated by some analysts to reach peak annual sales of $5 billion, Pfizer's future sales won't be brought low by Lipitor's losses. This is one gainer you can trust.

Disney (DIS 1.64%) is another Dow member that has exceeded 18% gains in 2013 to rank near the top of the index this year. The company made waves recently by closing LucasArts, the game development studio it recently acquired in its purchase of the Star Wars franchise for $4 billion. Don't let this scare you away, however: Disney still controls top sports brand ESPN, leading entertainment brands such as Marvel and LucasFilm, and its revenue-generating parks, which are gearing up for the summer season. With new Star Wars films set to continue the iconic franchise and Marvel dominating the box office, Disney's a good pick for any long-term investor.

The same can't be said for the Dow's leading gainer of 2013, however. Hewlett-Packard (HPQ 2.30%) has surged far ahead of the crowd this year, with shares up 39% year to date. Investors have bought into this company's turnaround story, happily reaping the rewards as HP has embraced a new, diversified future, introducing products such as the Moonshot server in order to reduce its dependency on the PC market.

HP is still tied to the PC industry, however, and this market's fall has been the company's bane. PC sales cratered by 14% in the first quarter of 2013, according to research firm IDC, and the market's collapse won't help HP turn its lagging business around any faster. Until HP manages to significantly decrease its reliance on PC-related sales and establish a major presence in more promising markets, this stock is a risky play at best. Investors looking for strong, steady blue-chip stocks shouldn't trust HP's surprising surge. This is still a company in trouble.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$32,120.28 (0.60%) $191.66
HP Inc. Stock Quote
HP Inc.
HPQ
$35.57 (2.30%) $0.80
Pfizer Inc. Stock Quote
Pfizer Inc.
PFE
$53.71 (0.56%) $0.30
The Walt Disney Company Stock Quote
The Walt Disney Company
DIS
$103.26 (1.64%) $1.67

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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