2019 has been a great year for stock market investors. The numbers tell the tale. The S&P 500 is up 29%, the Dow Jones average is up 22%, and the tech-heavy NASDAQ index has gained an impressive 35%. Stocks are on the rise, and it’s looking like the sky is the limit.
There have been several factors behind the stock market’s sharp gains. Earlier this year, the Federal Reserve began a modest run of rate-cut movements, pushing down bond yields. Also, while the US and Chinese governments have been at loggerheads over trade and tariffs, both countries have maintained contacts through the year and kept up negotiations for a trade settlement – which now appear to be bearing fruit. Also to the credit of the Trump Administration, low corporate taxes and a commitment to freer trade generally are positive for the markets.
So, with markets up and stocks clearly the way to go for investors seeking returns, the question is, Which stocks will make the best investments? Luckily, TipRanks -- a company that tracks and measures the performance of analysts -- allows you to pinpoint the most promising investing opportunities. Here we ran a screen on all the stocks in the Dow Jones- and then sorted the results from the most to least bullish according to the Street.
As you can see these 3 stocks all boast a ‘Strong Buy’ Street consensus based on ratings published by analysts over the last three months. Here’s why these are the three favorite Dow stocks of analysts right now:
Chevron Corporation (CVX)
Lower oil prices – an ongoing problem for the energy industry – have put pressure on Chevron, one of the world’s largest oil production companies. Even with lower prices, Chevron pulled in over $14 billion in net income last year, and is on track to exceed $10 billion this year.
The decline in income is clear in the EPS, which for Q3 showed a 6% estimate miss, coming in at $1.36. Revenues also missed the forecast, by 4%, and came in at $36.12 billion. These numbers reflect the fact that crude oil and natural gas liquids sold for an average of $47 per barrel in the quarter, down from $62 in the year-ago quarter. Lower prices offset a 3% increase in production.
Even with revenue and income down, however, CVX shares registered a 10% gain this year. The necessity of energy – and oil in particular – to today’s economy boosts the oil companies, ensuring steady income even against serious headwinds. And steady income allows the energy companies to sweeten their pot for investors with strong dividends. CVX pays out $4.76 per share annualized, giving a yield of 3.96% at current share prices. This yield is almost double the average among S&P listed companies.
Well Fargo analyst Roger Read sees CVX as a Buy proposition, pointing out that further regulatory restrictions in California are not likely to hit the company very hard. Read notes that CVX derives only 5% of its current total production numbers from California. He believes the company will outperform the markets in the next twelve months, and sets a $142 price target. His target indicates potential for an 18% upside.
CVX’s Strong Buy consensus rating is based on 6 Buys and 2 Holds set in the past two months. The stock’s $138.88 average price target suggests an upside potential of 15% from the current $120 trading price.
Visa, Inc. (V)
At a market cap of over $420 billion, Visa is the second-largest credit card processor in the world. The company handles well over 100 billion transactions annually, totaling more than $7 trillion. Like several of its industry peers, Visa does not actually issue the cards with its logo; the company licenses the Visa name and processes the transactions run on those cards.
Good economic times, and high consumer spending, have benefited Visa, and the company has shown strong growth. V shares are up 43% this year, outpacing the broader markets by a wide margin. The company’s fiscal Q4 report showed EPS above expectations and a 13% year-over-year revenue gain.
Even better, for investors, Visa combines strong stock performance with a modest dividend. The yield, at just 0.63%, is nothing to write home about, but the annualized payment of $1.20 represents a steady extra income for shareholders, and Visa has been steadily raising that payment over the past several years.
The analysts are impressed by V, and are clear in their comments on the stock. BMO Capital’s James Fotheringham writes, “[The] Q4 earnings beat and encouraging FY20 guidance driven by improved incentives, reduced operating costs, and lower assumed tax rate, [and] encouraging FY20 guidance [keep this stock our] top recommendation among U.S.financial technology, large-cap banks, specialty lenders, and asset manager companies.”
Fotheringham backs his Buy on V with a $239 price target, suggesting a 26% upside.
Visa’s Strong Buy rating comes from a unanimous analyst consensus. Eight analysts have given this stock the seal of approval in the past few months. Shares are expensive, at $189, but the reward is clear: the average price target of $211 gives the stock an 11.5% upside potential.
UnitedHealth Group (UNH)
Like visa, UNH is a giant – in fact, it is the world’s largest health insurer. The company faces a potentially serious headwind in the emerging platform positions of the Democratic Presidential candidates, who are coalescing around an anti-private insurance position, but its dominance of the current market has allowed it to register an 18% gain this year. UNH’s strong market position is built on a customer base exceeding 115 million people, and revenues over $220 billion annually.
UNH sees further growth ahead, despite the Dems’ political movement toward single payer. The company’s Q3 earnings report showed strong growth, with revenues up 7% year-over-year to $60.4 billion and EPS, at $3.88, up 13.8% from the year-ago quarter. Management was clearly pleased with the results, and raised full-year EPS guidance to the $14.90 to $15.00 range.
UNH offers a dividend yield of 1.46%, and the high share price puts the quarterly payment at $1.08. This helps make up for the stock’s relatively low upside potential.
5-star analyst David Toung, of Argus Research, is bullish on UNH and recently reiterated his Buy rating for the stock. He writes, “…the company's earnings growth in 2021 could reach 20% thanks to the expected permanent repeal of the Health Insurer Fee tax. With strong top-line growth coming from the company's UnitedHealthcare and Optum operating segments in Q3, [we] also remain positive on solid execution by UnitedHealth management driving its future growth.” Toung gives UNH a price target of $340, indicating confidence in a 15% upside.
Overall, UNH has 20 analyst reviews, including 17 Buys, supporting its Strong Buy consensus rating. The shares are not for budget investors, as they are priced at $295. The average price target, $312, suggests an upside of just 5.4%, perhaps reflecting downward pressure from political worries. But as Toung’s comments show, there is reason to believe that the average upside is understated.