The Dow Jones Industrials (DJINDICES:^DJI) include 30 of the biggest, most successful companies in the U.S. economy. Most of them had huge growth spurts in order to gain entry into the Dow, but having achieved that distinction, many Dow components slow down to growth rates more typical of mature companies in aging industry. Still, a few companies have what it takes to produce some strong growth rates. Today, let's look at Visa (NYSE:V), Home Depot (NYSE:HD), and Disney (NYSE:DIS), which sport some of the best growth prospects of any Dow stock and therefore are the first stocks that growth investors should explore.
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Visa has had a long history of solid growth, and that stems largely from the huge rise in the use of electronic payment methods around the world. Although people in the U.S. have used credit cards for decades, many areas of the world still predominantly use cash for typical transactions, giving Visa plenty of potential new market opportunities. Given the company's origins as a bank-owned collective, Visa has retained close relationships with many card-issuing banks even after assuming independent status.
Visa's key to setting a future growth rate of between 18% and 20% comes from two separate but equally important directions. In developed markets, Visa needs to continue its credit- and debit-card dominance while preparing for the inevitable transition to mobile-payment systems. Meanwhile, in the emerging world, Visa has to gain maximum market share as it fends off rivals who are interested in dethroning the card-network giant. For now, Visa has done a good job of staying on top of its industry, and investors see its growth continuing at a pace higher than any other Dow stock.
Home Depot is an obvious growth candidate now that the housing market has turned around, but what many investors don't realize is that the home-improvement retailer did a good job of finding growth even before home prices bottomed. Rather than relying on traditional business linked to new homeowners furnishing their homes, Home Depot instead looked at ways to convince existing homeowners -- many of whom were essentially stuck with homes they wouldn't ordinarily have hung on to -- to remodel and refurbish their homes either to make them more saleable or more livable.
Home Depot has competition, but it has largely left it behind. Now that housing activity has started picking up, Home Depot has room to sustain a 16% growth rate as long as the economy cooperates. Unless competing firms start to learn from its success, Home Depot has a strong chance of meeting the challenge.
Best in show
Disney's growth has come from all corners of its empire, from theme parks to studio and television entertainment. With so many smart acquisitions of content-rich properties, whether it's the Star Wars universe of recently acquired Lucasfilm or the many superhero productions that Marvel has already spawned, Disney makes it reasonable for investors to expect 14% annual growth from the company in the future.
Indeed, Disney hasn't even demonstrated its full potential, as content distributors are still figuring out just how valuable Disney content can be. In the long run, vertically integrated dominance in television, studio, and other entertainment should let shareholders reap much greater profits for years and even decades to come.