2 Dow Stocks to Buy Hand Over Fist and 1 to Avoid Like the Plague

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For the past 126 years, the iconic Dow Jones Industrial Average (^DJI -0.26%) has served as Wall Street’s barometer of stock market health. What was once a 12-stock index full of industrial companies has blossomed into a 30-component index full of profitable, diverse, and multinational businesses.

Although the Dow Jones is comprised of 30 companies that should, in theory, increase in value over the long run, some of its components make for more attractive investments than others. Among the Dow’s 30 stocks are two companies that can confidently be bought hand over fist right now, as well as another that is best avoided like the plague.

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Dow Jones stock No. 1 to buy hand over fist: Salesforce

The first Dow stock that’s begging to be bought just happens to be the fastest-growing of the 30 companies within the index: cloud-based customer relationship management (CRM) software provider, Salesforce (CRM 0.85%).

CRM software is used by consumer-facing businesses to enhance their existing relationships with clients and ultimately boost sales. This cloud-based software allows companies to oversee online marketing campaigns, handle product and service issues, and run predictive analyses to determine which clients would be likeliest to purchase a new product or service. Although service industry companies are the logical target for CRM software providers, the healthcare and financial sectors have provided intriguing sources of growth for CRM software companies.

If you’re wondering where Salesforce fits into this picture, look up. According to data from International Data Corporation (IDC), Salesforce has held the No. 1 market share in global CRM spending for nine consecutive years.

What’s more, its share of the global pie has been rapidly expanding over the past half-decade. In 2021, Salesforce accounted for 23.8% of worldwide CRM spending, which was more than four times higher than its next-closest competitor. The point is that Salesforce is unlikely to relinquish its go-to status as the global No. 1 in cloud-based CRM software anytime soon.

In addition to sustainable low, double-digit organic sales growth, Salesforce continues to benefit from the astute acquisition strategy led by its co-founder and co-CEO Marc Benioff. While not every deal will be a slam-dunk, the acquisitions of MuleSoft, Tableau Software, and Slack Technologies serve as perfect examples of ways the company’s ecosystem was expanded. Reaching new businesses allows Salesforce more opportunity to cross-sell its higher-margin CRM software solutions.

Conservatively, the company’s organic and inorganic growth has it on track to nearly double its revenue to $50 billion in full-year sales by fiscal 2026 (i.e., calendar year 2025). With Salesforce valued at a reasonably low 28 times forward-year earnings and growing by close to 20% a year, now looks like the opportune time for growth-seeking investors to pounce.

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Dow Jones stock No. 2 to buy hand over fist: Walgreens Boots Alliance

For you value investors, the second Dow stock to buy hand over fist right now is pharmacy chain Walgreens Boots Alliance (WBA -0.54%).

Generally, healthcare stocks are highly defensive and often impervious to bear market declines. Since we don’t get to choose when we get sick or what ailment(s) we develop, there’s always demand for prescription drugs, medical devices, and healthcare services. But during the pandemic, Walgreens’ brick-and-mortar-centric operating model was hit hard by lockdowns. This temporary maelstrom for Walgreens has served as the perfect opportunity for value seekers to attack.

What makes Walgreens Boots Alliance such a perfect stock to pile into is the company’s multipoint turnaround strategy, which has been in motion for years. This strategy emphasizes higher operating margins and intriguing organic-growth opportunities, and should be effective at driving repeat business at the grassroots level.

For example, management was able to reduce the company’s annual operating expenses by north of $2 billion a full year ahead of schedule. Yet in spite of tightening the company’s belt, Walgreens has spent aggressively on a host of a digitization and convenience initiatives. Even though the company will continue to generate the bulk of its revenue from its brick-and-mortar locations, it’s not out of the question that direct-to-consumer sales can sustain a double-digit sales growth rate moving forward.

But arguably the most exciting long-term development is Walgreens’ partnership with, and majority investment in, VillageMD. This duo has already opened 120 co-located, full-service health clinics nationwide as of the end of May 2022. The goal is to reach 1,000 health clinics in over 30 U.S. markets by the end of 2027. The differentiating factor here is that these clinics are physician-staffed and therefore perfectly positioned to handle repeat customers and preventative-care visits.

At roughly 7.4 times Wall Street’s forecast earnings for the current fiscal year, Walgreens Boots Alliance looks to be quite de-risked as an investment. While it might lack the growth potential of other Dow components, Walgreens’ 5% yield provides more than enough incentive for long-term investors to allow a turnaround to take shape.

The Dow Jones Industrial Average stock worth avoiding: Procter & Gamble

On the other end of the spectrum is a highly successful Dow component that investors would be wise to shun for the foreseeable future. I’m talking about consumer staples giant Procter & Gamble (PG -0.16%). P&G is the company behind popular brands like Tide detergent, Crest toothpaste, and Bounty paper towels.

In one respect, a fair argument can be made that a volatile market is the perfect time to buy shares of companies that produce nondiscretionary items. In other words, no matter how bad inflation gets, or how poorly the U.S. economy performs, consumers are still going to buy toothpaste, paper towels, detergent, diapers, and a host of other products that Procter & Gamble supplies.

To add to this point, P&G has one of the longest streaks of consecutive base annual payout increases among publicly traded companies. In April, the company announced that it would increase its base annual payout for a 66th consecutive year. P&G has also paid consecutive dividends in each of the last 132 years. In sum, it’s a pretty steady operating model.

However, there are three causes for concern. To begin with, foot traffic to superstores has vastly outpaced foot traffic to non-value-based grocery stores in recent months.  This would suggest that consumers are looking to stretch their budgets and are willing to trade down from the familiar brands that a company like P&G offers.

Secondly, Procter & Gamble’s valuation sticks out for all the wrong reasons. Even with historically high inflation, P&G is only expected to grow its sales by 5% this year. More worrisome, it’s valued at an aggressive 25 times Wall Street’s forecast earnings for 2022 on the heels of just 5% sales growth.

But the real concern might be that recessions have a way of stymying shareholder value for years. It’s not uncommon for P&G to trade sideways for five or more years following an economic downturn.

With so many attractive Dow stocks to choose from, Procter & Gamble is, unfortunately, a stock that investors can easily bypass at its current price.