Last week, the iconic Dow Jones Industrial Average (^DJI 0.00%) celebrated its 126th “birthday” since inception. Initially, in the late 19th century, it was a 12-stock index made up of (surprise!) industrial stocks. But today, it’s made up of 30 highly profitable, well-known, and successful companies that have a storied history of making long-term investors a lot richer.
It’s also an index that, like the rest of the stock market, has hit a rough patch. Since the beginning of the year, the Dow Jones has lost as much as 15% of its value, which firmly places it in correction territory. The thing is, every double-digit decline in the Dow throughout history has eventually been cleared away by a bull market rally. This implies that all corrections serve as an opportunity for patient investors to do some shopping.
In the wake of this sizable pullback, three Dow stocks stand out as screaming buys in June.
The first Dow stock that’s an exceptionally good deal in June happens to be the widely followed index’s fastest-growing company, Salesforce.com (CRM 9.88%).
Salesforce provides cloud-based customer relationship management (CRM) software solutions. In simple terms, CRM software helps businesses build on their existing customer relationships so they can increase sales. Consumer-facing companies use CRM software to oversee online marketing campaigns, handle product and service issues, and run predictive sales analyses to determine which clients would be best to pitch new products or services.
Despite being the fastest-growing Dow component, Salesforce has lost nearly half of its value in six months, largely due to the concerns about the U.S. economy possibly dipping into a recession. Rapidly rising interest rates aren’t helping, either, given Salesforce’s penchant for making acquisitions and occasionally leaning on the debt market for these deals. Yet both of these downside catalysts are relatively short term in nature and don’t adversely affect Salesforce’s growth strategy.
What investors should know about Salesforce is that its market-share lead in CRM appears insurmountable. As of the end of 2021, it accounted for 23.8% of global CRM spending, which is over four times higher than SAP, the second-ranked company in CRM application market share (5.4%). It’s the ninth consecutive year Salesforce has held the top spot in CRM market share, with the company expanding its lead almost every year, according to International Data Corporation (IDC).
As noted, this is a company that loves acquisitions designed to expand its ecosystem and fuel cross-selling opportunities to small and medium-size businesses. Some of the most notable buyouts include MuleSoft, Tableau Software, and Slack Technologies.
As of last weekend, shares of Salesforce could be purchased for about 28 times Wall Street’s forward-year earnings. That’s less than half its five-year forward price-to-earnings (P/E) average of 61. With CEO Marc Benioff reiterating that his company can nearly double its revenue and reach at least $50 billion in annual sales by fiscal 2026 (calendar year 2025), Salesforce has the look of a no-brainer buy.
Walgreens Boots Alliance
Walgreens’ stock has been dealt two bad hands since the beginning of 2020. First, the COVID-19 pandemic reduced foot traffic into its stores, which hurt front-end retail sales as well as clinic revenue. Although healthcare stocks are (pardon the pun) typically immune to economic downturns since people are always getting sick and requiring care, COVID proved to be the exception to the rule for Walgreens.
Now Walgreens is being hampered by historically high inflation. The company’s product and labor costs are rising at a time when lower-income folks are being hammered by high costs. That’s often a recipe for lower front-end sales. But these concerns that are holding down Walgreens’ shares are, again, short term in nature.
This is a company that has multiple catalysts working in its favor as a result of a multipoint turnaround strategy that was implemented years ago. On one hand, Walgreens has reduced its annual operating expenses by more than $2 billion a full year ahead of schedule. Trimming the fat is a common tactic that companies use to bolster their operating margin when sales growth is challenged in the short term.
However, the company has been spending aggressively on digitization and health-clinic initiatives. Even though Walgreens will always generate the bulk of its revenue from its brick-and-mortar stores, the pandemic taught management how important it is to invest in direct-to-consumer sales and drive-thru pickup options. These are simple ways Walgreens can drive steady organic growth in virtually any economic environment.
There’s also Walgreens’ partnership with, and investment in, VillageMD. The duo has opened more than 100 full-service clinics co-located at Walgreens’ stores nationwide, with the goal of opening 1,000 clinics in over 30 U.S. markets by 2027. Having physician-staffed clinics is a differentiator that can improve engagement at the grassroots level and build repeat business for the company’s pharmacy segment.
With a forecast P/E ratio of less than 9 and a 4.4% dividend yield, Walgreens Boots Alliance appears to have a safe floor and reasonable upside to offer patient investors.
A third Dow stock that’s a screaming buy in June (and likely well beyond) is theme park operator and content kingpin Walt Disney (DIS -1.13%).
Since hitting an all-time, intraday high of more than $187 nearly nine months ago, shares of Disney have cratered 42%, as of this past weekend. Uncertainty surrounding the pandemic continues to be the biggest issue plaguing Disney, with its theme parks in China struggling with the country’s zero-COVID approach.
Additionally, it’s been bogged down by higher marketing and production costs tied to its streaming service, Disney+. Through the first six months of fiscal 2022, direct-to-consumer losses totaled $1.48 billion, which was up 96% from the prior-year period. With the broader market tumbling, valuations and profitability are more important than ever.
But in keeping with the theme of this list, the headwinds Disney is facing are both short term and nonstarters when it comes to the company’s growth strategy.
Arguably, the top reason to buy shares of Disney and hold for a long time is the company’s vast sea of proprietary content and characters. Disney has decades of success under its belt when it comes to engaging with multiple generations of moviegoers and theme park guests. Whether it’s a 5-year-old visiting a theme park for the first time or a grandparent watching Snow White and the Seven Dwarfs for what might be the 50th time, the Disney name has become synonymous with family, fun, entertainment, and imagination for a long, long time. That’s not particularly replicable by its competition.
Despite large losses in the near term, investors should also be impressed with the rapid growth of Disney+. The streaming platform has signed up 137.7 million subscribers in about 2 1/2 years. Comparatively, it took leading streaming platform Netflix more than 10 years to surpass 137.7 million subscribers after its launch. Even if streaming margins wind up being less impressive than initially anticipated, Disney+ can serve as a means to keep users engaged with Disney’s vast ecosystem of high-margin products and services.
As one final note, Walt Disney is perfectly positioned to tackle historically high inflation. A quick look at the company’s history of theme-park admission prices shows it’s stayed well ahead of the inflationary curve for decades. Best of all, consumers have willingly paid these higher price points.
Historically speaking, any dip of 40% or more in Disney’s stock has been a surefire buying opportunity.