The Dow Jones Industrial Index or DJIA has risen 15.5% year-to-date. The index is trading at 26,935.07, which is 1.9% below its 52-week high. The Dow Jones index has performed incredibly well in 2019, thus far.
While the sell-off in the last quarter of 2018 was exacerbated, the markets have been impacted by a slowing global economy, trade war concerns, and, most recently, by the attacks on Saudi’s oil fields. So, which stocks have driven the Dow Jones to record highs in 2019? Let’s take a look.
Apple top performer in Dow Jones
Shares of tech giant Apple (AAPL) have gained 38% in 2019 after losing 8% last year. In fact, Apple shares lost close to 30% in the last quarter of 2018. Despite Apple’s resurgence this year, the stock is trading almost 7% below its record highs.
Apple accounts for 5.5% of the Dow Jones Index and has been the top performer this year. While Apple was impacted by slowing iPhone sales in the last few quarters, there is optimism over robust demand for its new line of smartphones.
Apple sees highs and slows with returning trade talks
However, as seen in the Dow Jones, Apple shares were trading lower as the trade war between the top two economies escalated. But, trade talks have resumed in the last month, driving investor optimism higher.
Apple has also launched a slew of new products and services recently. The tech heavyweight is looking to diversify its revenue base. It launched a new streaming service as well as a gaming subscription service earlier this month.
The trade war concerns still remain. Further, with the Dow Jones trading close to record highs, there is a chance for another tech sell-off in the coming months. AAPL stock is trading at a discount of 3.1% to analyst 12-month target estimates of $224.48.
Microsoft accounts for 3.5% of Dow Jones
Shares of Microsoft (MSFT) have returned 37.3% year-to-date. The stock rose close to 18% last year as well, despite falling 14% in the last quarter of 2018. These gains have meant that MSFT stock is valued at over $1 trillion in the Dow Jones. This makes Microsoft the only publicly listed company to do so currently.
Microsoft has been able to grow its revenue across business segments. In 2018, MSFT sales from its Personal Computing segment were up 9%. MSFT’s Productivity and Business Processes segment grew sales by 17.8% last year while the Intelligent Cloud sales were up 17.4%.
Microsoft is growing its public cloud revenue at a robust rate and is gaining market share at the expense of cloud titan Amazon (AMZN). MSFT continues to increase shareholder wealth. It recently increased dividends by 10.9% in the Dow Jones. The company also announced a share buyback program amounting to $40 billion.
Analysts see Microsoft as overvalued
Analysts expect Microsoft to grow sales by 11.1% in 2019 and 11.1% in 2020. The company’s earnings per share are estimated to rise by 10.3% in 2019, 13.4% in 2020, and at an annual rate of 14.5% in the next five years. It has a dividend yield of 1.5%.
Comparatively, Microsoft stock is trading at a forward price to earnings multiple of 23.5x. Microsoft shares look overvalued at the current price even after accounting for its dividend yield. Microsoft stock is trading at a discount of 10.8% to analyst’s 12-month target estimates of $154.53.
Procter & Gamble are a safe hedge
Shares of leading consumer product company Procter & Gamble (PG) have returned 33% year-to-date. The stock managed to outperform the Dow Jones in 2018 when it rose 4.4%. This consumer product company can be a safe hedge in a recessionary environment.
Analysts expect PG to grow sales by 3.8% in fiscal 2020 (ending in June) and 3.5% in 2021. The company’s earnings per share are estimated to rise by 7.3% in 2020, 6.6% in 2021, and at an annual rate of 7.3% in the next five years. It has a dividend yield of 2.44%.
Comparatively, PG stock is trading at a forward price to earnings multiple of 23.6x. Company shares look overvalued at the current price even after accounting for its dividend yield.
PG, AAPL, and MSFT show strong futures in the Dow Jones
PG stock is trading at a discount of 1.2% to analyst’s 12-month target estimates of $123.73. It accounts for 3.1% of the Dow Jones Index. We have seen that the strong gains experienced by Apple, Microsoft, and PG this year have driven stock valuations higher. The three giants are trading at a premium and are set to experience weakness in the short term.
The Dow Jones too is trading close to record highs and might have limited upside potential. Analysts need to remain cautious going forward.