The Dow Jones Industrial Average(DJINDICES: ^DJI) has only risen 4% this year, compared to the S&P 500's 15% gain and the Nasdaq-100's 17% return. The Dow underperformed the other two major indexes for two main reasons: It only tracks 30 prominent companies, and it's more heavily weighted toward slower-growth industries. It's also a price-weighted index, which arguably makes its less accurate than a market cap-weighted index like the S&P 500 and the Nasdaq-100.
Nevertheless, the 30 companies of the Dow -- which are also included in the S&P 500 -- still represent a good starting point to look for stable blue chip stocks. So today, I'll highlight three of those stalwarts that are set to soar in 2024 and beyond: Amazon (NASDAQ: AMZN), Walmart (NYSE: WMT), and IBM(NYSE: IBM).
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1. Amazon
Amazon is the world's largest e-commerce and cloud infrastructure company. In 2022, its revenue only rose 9% as macro headwinds throttled the growth of its marketplace and cloud businesses. Its investment in the struggling EV maker Rivian also backfired and caused Amazon to post a net loss for the full year.
That slowdown spooked a lot of investors. But in 2023, its revenue rose 12% as it returned to profitability. That acceleration was driven by the stabilization of its North American and international retail divisions, faster delivery speeds, its expansion into higher-growth overseas markets, and the growth of its integrated advertising business. Its cloud unit, which usually subsidizes its lower-margin retail segment with higher-margin revenue, recovered as more companies upgraded their infrastructure to support bigger workloads, large language models, and new generative AI applications.
Analysts expect Amazon's revenue and earnings to grow 11% and 57%, respectively, this year. Its stock still looks reasonably valued at 40 times forward earnings, and it could head a lot higher as the macro environment improves.
2. Walmart
Walmart is one of the few brick-and-mortar retail giants that has consistently kept up with Amazon. It accomplished that by expanding its e-commerce marketplace, turning its stores into fulfillment centers for online orders, matching Amazon's prices, and rolling out its own Walmart+ subscription plans to counter Amazon Prime.
Walmart also competes against Costco in the warehouse retail market with Sam's Club, and it operates additional banners and e-commerce sites across 19 other countries. That makes it a lot more diversified than many U.S. retailers.
In fiscal 2024 (which ended this January), Walmart's revenue and adjusted EPS both increased 6%. For fiscal 2025, analysts expect its revenue and adjusted EPS to grow 4% and 9%, respectively, as its domestic business recovers and its international business expands. The company's stock still seems reasonably valued at 28 times forward earnings, it pays a decent forward dividend yield of 1.2%, and it's in better shape than most of its competitors.
3. IBM
IBM was once considered a dinosaur of the tech industry that had fallen far behind its nimble cloud-based peers. But the company divested its slower-growth managed infrastructure services unit as Kyndryl in late 2021, expanded its subsidiary Red Hat to develop more hybrid cloud services, and rolled out more AI features.
By streamlining its business and expanding higher-growth hybrid cloud and AI businesses, IBM started to grow again. In 2023, revenue and adjusted EPS rose 2% and 5%, respectively, even as the cloud market faced tough macro headwinds. In 2024, analysts expect its revenue and adjusted EPS to increase 2% and 3%, respectively.
Those growth rates might seem anemic, but they mark a massive improvement from previous years of revenue declines. IBM stock looks cheap at 17 times forward earnings, and its high forward dividend yield of 3.9% should limit its downside potential. Over the long term, its stock could head a lot higher as its hybrid cloud and AI businesses accelerate.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Leo Sun has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Costco Wholesale, and Walmart. The Motley Fool recommends International Business Machines. The Motley Fool has a disclosure policy.
