Estimated read time: 4 minutes
Publication date: 11th Oct 2021 12:19 GMT+1
The Dow Jones Industrial Average is up nearly 15% year-to-date and has been hovering around the same levels since August this year. However, there are some stocks on the popular index that are lagging the benchmark by a fair margin.
These could be construed as bargain buys in the current scenario where savvy investors hunt for good companies that have hit a rough patch but will bounce back in due course.
Let’s take a look at three such Dogs of the Dow stocks on the DJIA Index.
A pharmaceutical company that opted out of the COVID-19 vaccine race, Amgen (NASDAQ: AMGEN) has grossly underperformed the Dow Jones Industrial Average in the first nine months of 2021. But it meant that the stock didn’t experience volatility on every COVID-19 update. However, this also meant that the stock has hardly moved since March 2020.
It closed at $202.7 on March 1, 2020, and closed on October 8, 2021, at $209. The stock is down 7.81% year to date and revenue for 2020 came in at $25.42 billion, up from $23.36 billion in 2019.
Amgen is a steady dividend player. It has increased its dividend by 76% in the last five years, and the fall in its stock price has caused its forward yield to go up to 3.37% from 2.27% in recent years. The company had no problems paying out dividends throughout the pandemic and its earnings for 2020 ($7.26 billion) is proof that it has done well despite testing times.
The average target price for Amgen by analysts is $248.18, a potential upside of almost 19% from its current price. This stock could be a smart buy as dividend-adjusted returns will be closer to 23%.
3M (NYSE: MMM) is that rare stock which is a staple in the consumer as well as the industrial world. It makes post-it notes and scotch tape but it also makes food-safety testing materials and reflective materials for road safety. 3M produces over 60,000 products and sells them across the world.
However, the real reason to buy the company is that it is one of the most consistent dividend payers in the market today with a forward yield of 3.35%. It hasn’t missed a single dividend payment in a century and has increased dividends each year for 63 years. The stock has moved up just a shade lower than 3% this year, and closed October 8 at $176.95.
Analysts have an average target price of $195.01 for 3M which is an upside of just over 10% from current levels. When you add in the dividend payout, it makes for a good buy.
Caterpillar (NYSE: CAT) is a stock that is up just 7.14% this year. It was up a lot more in the year when it closed at $244.02 on May 31, 2021, but it has been on a steady decline since then after falling victim to supply chain concerns that are plaguing the world. However, the stock could be turning a corner soon.
JP Morgan wrote to its investors on October 8 saying that Caterpillar is their top pick going into 2022. "We believe Caterpillar's earning power and free cash flow conversion over this upcoming cycle, supported by solid global GDP growth, continue to merit our Overweight rating," said JPMorgan analysts Anne Duignan, Thomas Simonitsch and Sean P McMullen.
The company produces and sells construction and mining equipment, diesel and natural gas engines, and industrial gas turbines across the world, all industries that have been hampered by the pandemic and supply chain breakages.
As economic recovery slowly gains, Caterpillar’s industries will get back to normal activity. Further, as construction activity resumes around the world, Caterpillar stock will likely rebound. In the US, President Joe Biden’s plan $2 trillion infrastructure plan will also play a key role in boosting Caterpillar stock which closed at $195.16 on October 8.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
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