Over the last five days, the Dow Jones Industrial Average (DJIA) has continued to show weakness, having slumped by -3.99% to present 38,111. This level was last seen at the end of January but also at the beginning of May, after which DJIA touched a new all-time high of 40k in mid-May.
Considering that DJIA represents 30 companies powering the US economy, investors see these moves as a reaction to a strained economy. The latest report from the Commerce Department on Friday confirmed sticky inflation, with the personal consumption expenditures (PCE) index increasing by 0.3% over the last month.
Although this keeps PCE unchanged at 2.7% annual (core 2.8%), consumer spending is weakening. When accounting for inflation, real consumption declined by 0.1% m/m. Overall, the White House’s Council of Economic Advisers expects an inflation cooldown once the lag from housing inflation kicks in.
In that scenario, where housing inflation contribution eases alongside core services, the Federal Reserve would have more space to cut interest rates. On the long-term horizon, this would equate to presently discounted Dow stocks following the weekly dip.
Procter & Gamble
More resistant to sticky inflation than established companies, Procter & Gamble Company (NYSE:PG) owns nearly a hundred household brands across essential goods. In this sector, the company has a 9.29% market share vs its main competitor, Johnson and Johnson (NYSE: JNJ (NYSE:JNJ)) at 9.04%.
Year-to-date, PG stock is up 9%, or nearly 14% over one year. For fiscal Q3 2024, ending March, Procter & Gamble reported a 3% increase in organic sales from January. The increase in core operating margin led to the company’s net earnings growth by 11% to $3.75 billion from the year-ago quarter.
Through cash dividend payouts, PG returned $2.3 billion to shareholders, in addition to $1 billion worth of stock buybacks. The company demonstrated its wide moat status by increasing dividends, marking the 68th consecutive increase throughout its 134 years of dividend payouts. It now stands at an annual payout of $4.026 per share.
Currently priced at $162.58, PG shares are 13% below the 52-week low of $141.45. According to Nasdaq’s forecasting data, the average PG price target is $171 per share.
Broadcom
Since the coverage in January, this semiconductor stock has increased in value by 8%. Just like then, the thesis for Broadcom Inc's (NASDAQ:AVGO) growth remains strong. In addition to providing custom AI chip solutions for heavyweights like Meta (NASDAQ: META) or Alphabet (NASDAQ:GOOGL), Broadcom has a history of farsighted acquisitions.
After acquiring Symantec (NASDAQ:GEN) and VMware (NYSE:VMW), these software companies are now leading in cybersecurity products, behind CrowdStrike (NASDAQ:CRWD) by market share. Broadcom’s diversification into enterprise-grade software, which grew by 153% to $4.57 billion, made it more resistant to the ebbs and flows of the semiconductor cycles.
Broadcom’s next earnings call for Q2 is scheduled for June 12th. In the prior quarter, the company missed the estimated earnings per share of $8.95 by a negative 4.47% surprise. This was after beating EPS estimates for three consecutive quarters from Q2 ‘23. Ending February, Broadcom delivered $1.3 billion net income vs $3.7 billion from a year-ago quarter.
Over one year, AVGO stock gained 63% value, largely owing to the 4x ramp-up in AI chip revenue to $2.3 billion in Q1 out of the total $11.96 billion net revenue. As an offsetting cyclical driver, this put Broadcom in the investor spotlight.
Broadcom’s present price of $1,318 per share is 9.6% under its 52-week high of $1,445. Nasdaq’s forecasting places the average AVGO price target significantly higher, at $1571.55 twelve months ahead.
Verizon Communications
In April, the telecom giant reported multiple upsides to its core business. Verizon Communications Inc's (NYSE:VZ) Q1 earnings showed 3.3% YoY wireless service revenue growth alongside free cash flow increased to $2.7 billion vs $2.3 billion in the year-ago quarter. This was despite the 5.9% decrease in net income to $4.7 billion.
Having beaten EPS estimates for the last four consecutive quarters, VZ stock is up 5% YTD. However, this Dow stock is popular among investors because of its relatively high dividend yield, now at 6.6% with a $2.66 annual payout per share.
According to Zacks Investment Research, the company’s next earnings call is scheduled for July 23rd. The consensus EPS forecast is $1.16. The company’s price-to-earnings ratio remains stable, staying within the 8.6 range from the actual 8.56 during 2023.
At the present price of $40.33, VZ stock is nearly 8% away from its 52-week high of $43.42 per share. Nasdaq’s average price target places VZ shares just above that high, at $44.62 per share.
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Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
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