So far, 2022 hasn’t been a great year for stocks. We have been engulfed in a bear market with multiple negative geopolitical and monetary catalysts weighing on equities. Dow stocks, however, have weathered the storm a bit better than others, and it is possible to find good Dow stocks to buy.
Prior to today’s action, the Dow Jones Industrial Average was down “just” 14.9% in 2022. While an abysmal performance by most standards, the Dow Jones performed the best of the four major US stock indices in 2022.
By comparison, the S&P 500 was down 18.5% in 2022, while the Nasdaq and Russell 2000 were down 26.6% and 20.4%, respectively. The “risky” assets that make up much of the Russell and Nasdaq are clearly being beaten, as investors flock to many blue chip stocks that are more prevalent in the Dow Jones and S&P 500.
While the S&P 500 has lagged the Dow this year, it’s important to note that the former has 500 stocks in its index, while the latter has only 30.
Let’s focus on three Dow stocks to buy during a possible upcoming market crash.
Dow stocks to buy: Apple (AAPL)
It should come as no surprise that we kick off this list with Apple (NASDAQ:AAPL). It’s the largest publicly traded company with a market capitalization of $2.5 trillion, and it’s one of the few tech stocks that’s weathering the bear market.
The caveat with this stock is that investors may have another chance to buy it near its 2022 lows. Recently, Apple has been one of the best performing tech stocks. As the market continues to turn, AAPL stock has held up relatively well.
But as much as I (and apparently all investors) love Apple, we have to be realistic about this. Analysts on average expect its sales to increase by only 7.3% this year. In fiscal 2023, the average estimate calls for a deceleration to just 5% revenue growth.
A similar slowdown is expected for earnings, with the middle estimate calling for 8.7% growth in 2022 and an increase of just 5.7% in 2023. At its current prices, that leaves Apple shares trading at around 25%. times this year’s profits. However, if the stock retraces to its low, that valuation will drop to around 21 times earnings, provided analysts’ earnings estimates for AAPL don’t fall as well.
Apple is not invincible. But the growth of the company’s Services unit, which makes double the gross margins of its Products business, outpaces the overall increase in revenue. Additionally, Apple’s free cash flow remains immense and Apple is still buying back a huge number of its shares. Given these points, we can only ignore the AAPL for so long.
Dow stocks to buy: Microsoft (MSFT)
I hate to be predictable enough to pick another mega cap tech stock, but with Microsoft (NASDAQ:MSFT) Market cap of $1.83 trillion, hard to ignore.
Microsoft not only has a fortress balance sheet, it owns a big business. It is now firmly considered a conglomerate. While Windows remains its core business, it also has notable strengths in enterprise/office sales, cloud, gaming, social media (with LinkedIn) and more.
Perhaps the most notable thing that goes unnoticed about Microsoft is the fact that it generates better operating margins than any of the FAANG stocks.
While the FAANG names seem to be grabbing headlines and attracting attention, Microsoft has somewhat quietly accrued massive valuation while generating huge profits. The best part is that analysts expect the company to continue posting such huge results.
Average analyst expectations call for revenue growth of 11.4% this year and an acceleration to 14% revenue growth in 2023. On the earnings front, their outlook is similar, with average estimates calling for a growth of 10% this year and 18% in 2023. .
As the market slumps, investors can protect themselves by finding great, blue-chip Dow stocks to buy like Microsoft.
I went back and forth trying to choose the last name on this list. In the end though, I probably settled on what will probably be my most controversial choice: Selling power (NYSE:RCMP).
As much as I like the long-term outlook of Nike (NYSE:NKE), disney (NYSE:SAY) and others, I can’t ignore the combination of growth and value that Salesforce offers. Stocks are hitting new lows as we speak, and they are down more than 50% from their highs.
However, Salesforce management just said it expects revenue of $50 billion in fiscal year 2026. For what it’s worth, that’s about $5 billion more than the previous year. average estimate. That’s insane, considering its FY22 revenue was “only” $26.5 billion.
Salesforce’s recent forecast called for revenue of $30.9 billion to $31 billion for FY23. But it’s staggering that the company thinks its revenue will grow that much in a few years.
Analysts on average expect Salesforce to see roughly flat profit growth and a 17% increase in revenue. Even if its earnings remain stable, we are talking about 31 times earnings this year and 26 times the average estimate next year. If the stock drops sharply – say to $125 per share – CRM stock will trade at 26 times this year’s average estimate and 22 times next year’s average estimate.
As of the date of publication, Bret Kenwell had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.