Tracking 30 big blue-chip companies, the Dow Jones Industrial Average (DJIA) achieved a new all-time high on Thursday at 40,051. The above 39k range was in line with the two DJIA peaks in the second half of March.
For comparison, when the stock market crashed during the viral scare in March 2020, DJIA plummeted to 18,591 from nearly the 30,000 level. Despite the higher interest rate regime since March 2022, it appears that the massive increase in the money supply, plus government spending, has created supportive scaffolding for DJIA.
After all, global military expenditures reached an all-time high of $2.4 trillion in 2023, the sharpest 6.8% climb since 2009, according to the Stockholm International Peace Research Institute (SIPRI). Combined with infrastructure projects, the federal government has racked up two centuries’ worth of debt ($11 trillion) since 2020 in order to keep breaking records.
This trend will likely continue because USG relies on a debt-based economy. The question is, which DJIA companies are most suited to reap the money flows?
Caterpillar, Inc.
During 2023, Caterpillar Inc (NYSE:CAT) stock has been trading 16x over its earnings. The same price to earnings ratio is expected during 2024, only forecasted to decrease to 15 P/E in 2025. Benefiting from a sustained ramp-up in infrastructure spending, Caterpillar has ties from mining and construction to transportation and oil and gas industries.
Consequently, over one year, CAT shares gained nearly 70% value. In its April earnings report for Q1 2024, the company reported $15.8 billion in revenue. Although it’s relatively the same as in Q1 2023 of $15.9 billion, Caterpillar significantly improved its operating profit margin, from 17.2% to 22.3%, indicating improved efficiency and competitive advantage.
Caterpillar’s adjusted operating profit increased by 5% to $3.5 billion, with a record-breaking (adjusted) profit per share growth of 14% at $5.60. At $350.72 per share, CAT stock is 41% above the 52-week low of $205.60. Per Nasdaq forecast data, the average CAT price target is $360.93 per share, with high to low forecast variance at $440 vs $257, respectively.
In addition to being a wide-moat stock, investors can count on consistently rising CAT dividend payouts. At a 1.48% dividend yield, investors can expect an annual dividend of $5.20 per share. In 2023, Caterpillar returned $7.5 billion in dividends and share repurchases.
American Express
Unlike the payment processor Visa (NYSE:V) at 8.3%, American Express Company (NYSE:AXP) gained 29% value year-to-date. It appears that being a more exclusive brand is paying off. Although Visa holds 38.73% of global payment volume compared to American Express’ tiny 4.61%, the company mastered premium membership exclusivity and customer engagement.
In Q1 2024, American Express reported 3.4 million new card carriers. Typically, high-paying members increased their spending by 7%, delivering a 34% net income growth from the year-ago quarter at $2.4 billion. Interestingly, the company saw strong demand from younger Millennials and Gen Z, at 60% of new acquisitions globally, indicating great potential for further growth.
For the full year 2023, American Express had a 9% to 11% earnings per share (EPS) growth at $12.65 – $13.15 range. At present price of $241.32 per share, AXP is 41% above the 52-week low of $140.91. However, the average AXP price target is under the present price at $233.33 per share. The low forecast is $175 vs the high estimate of $265 per share.
Nonetheless, investors can also expect a reliable dividend stream. At present, American Express has a 1.16% dividend yield at a $2.80 annual payout per share. In 2023, American Express returned $1.6 billion to shareholders as dividends.
Microsoft
Since the November forecast that Microsoft Corporation (NASDAQ:MSFT) would surpass Apple (NASDAQ:AAPL) in market value, MSFT shares have gained 11.3% to $420.99 per share. Over the last 30 days, Microsoft stock has remained relatively flat at 0.6%. Although the software giant has strong fundamentals, deep pockets, and a promising outlook, it is not immune to market volatility and profit-taking.
This makes MSFT exposure at this particular time especially attractive. Considering April’s deep dive between Google (NASDAQ:GOOGL) and Microsoft, the latter has a stronger position. This ranges from AI integration and gaming to OS dominance and Azure Cloud as the main infrastructure for apps and generative AI alongside Amazon (NASDAQ:AMZN) Web Services (AWS).
Unlike Caterpillar (CAT) and American Express (AXP), which are both 41% above their 52-week lows, Microsoft is just 26.5% over its 52-week low of $309.45 per share. For full-year 2024, the company’s price-to-earnings ratio is expected to hold at 35.77, revealing high investor confidence.
Per Nasdaq forecasting data, the average MSFT price target is $491.56 vs. the current $420.99 per share, making it one of the highest DJIA growers. Tellingly, the low estimate is also higher than the present price, at $450, while the high forecast is around $600 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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