Q3’s Rising Stars: 3 Dow Stocks for Your Must-Watch List Q3’s Rising Stars: 3 Dow Stocks for Your Must-Watch List

The Dow Jones Industrial Average is a laggard in 2024. While other indices roared higher over the first half of the year, the venerable Dow gained only about half of its peers. 

Even though Magnificent Seven components Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) are part of the index because it is price-weighted and not market cap-weighted like the S&P 500 and Nasdaq 100, their movements did not influence its growth as much.

The Dow Jones is much more diverse in terms of its components than the S&P, where the Magnificent Seven account for nearly a third of the popular index.

That means the more egalitarian Dow provides a better barometer of how the economy is performing. Investors looking for what comes next might want to pay close attention to these Dow stocks to watch.

3M (MMM)

It was a bitter pill for 3M (NYSE:MMM) investors to swallow when the industrial conglomerate slashed its dividend in half in May. Beset by mounting legal woes due to faulty earplugs sold to the military and environmental pollution from so-called “forever chemicals,” 3M cut its dividend after more than six decades of increasing it.

Yet as I noted at the time, this makes the industrial giant an attractive Dow stock to watch. It was in the process of settling the lawsuits, had spun off its consumer products division into Solventum (NYSE:SOLV) and freed up its cash profits to invest back into the company.

Dividend payments were eating up almost all of its free cash flow (FCF), and by cutting the payout, it gave itself greater financial flexibility. That was just proven by the second-quarter results released last Friday. Although revenue was lower by a half percent, adjusted profits surged 39% year-over-year to $1.39 per share as it produced $1.2 billion in adjusted FCF.

3M stock soared 22% after the news as the conglomerate raised the lower end of its full-year guidance. It now sees adjusted earnings per share in a range of $7.00 to $7.30 per share compared to its previous outlook of $6.80 to $7.30 per share. With the stock trading at 16 times earnings estimates and FCF, MMM shares remain attractive.

Disney (DIS)

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Did Disney (NYSE:DIS) just remember how to make movies again? On the heels of two smash hits with Inside Out 2 and Despicable Me 4, the just-released Deadpool & Wolverine movie broke some box office records. It grossed an estimated $438 million over the weekend. That’s a record for R-rated movies and the eighth-biggest opening for any film ever. 

Disney also announced that popular actor Robert Downey Jr. would be returning to the Avengers. Not as his iconic Iron Man character but rather as villain Dr. Doom in two upcoming films.

The entertainment giant had a horrible string of failures in 2023 where virtually every movie it put out lost money. As moviegoers rejected the overt political and cultural messaging included in its films, people stayed away from the theater. CEO Bob Iger has finally gotten the message after Disney stock has lost half its value over the past three years.

Its theme parks have long been a strong source of income. But to thrive, it needs all of its entertainment arms working properly. Focusing again on making family-oriented fare without injecting messaging into its movies is what the company needed. It will help its streaming business, too, as Disney hasn’t had a hit show and industry cancellations are rising.

Keep a close watch on DIS stock. It has been a part of the Dow since 1991. Although not at risk of being booted, this welcome change of direction could boost its standing. 

Johnson & Johnson (JNJ)

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Healthcare leader Johnson & Johnson (NYSE:JNJ) is the third of the Dow stocks to watch. The drugmaker’s stock is up only 1% so far this year. Until the beginning of July, shares had been deep in the red. Yet it has been a blue-chip worth buying, particularly in a dicey economy.

Well-diversified across pharmaceuticals and medical devices, its drug pipeline is robust enough to support its therapies already on the market. Johnson & Johnson’s medical device business just chugs along.

Second-quarter results earlier this month showed its pharmaceutical business grew 9% versus a 4% increase in medical devices. While the latter was slowed by pricing in China, sales should pick up in the back half of the year. Johnson & Johnson maintains its long-term growth rate targets of 5% to 7% are intact.

The pharma’s main immunology drug, Stelara, represents 20% of total sales, but growth will slow as competing biologics come to market. Yet oncology treatment Darzalex, which generated $2.9 billion in sales in the second quarter, continues to take market share. It also has a passel of other drugs that were just released that could see tens of billions of dollars in sales over the next few years.

It possesses strong pricing for its pharmaceuticals, its medical business continues to gain traction and Johnson & Johnson remains a Dow stock to watch.

On the date of publication, Rich Duprey held a LONG position in MMM, SOLV and JNJ stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.