The 6 Best Stocks to Buy in the Dow Jones Industrial Average

NEW YORK ( TheStreet) - There are good stocks to buy and then there is a group of stocks that can be considered the best of the best in the investing world.

Now 119 years old, the Dow Jones Industrial Average is the second oldest stock market index and the stocks in this index make up some of the largest and influential companies in the U.S., representing about one quarter of the value of the entire U.S. stock market. Recently Apple (AAPL) made big news when it was added to the Dow in March, representing a new era of influential technology companies, replacing old-school telecom AT&T (T).

Of the 30 stocks within the DJIA, these six stocks are top rated.

The stocks on this list are all rated Buy, with an A or A+ rating. Check out which stocks are the best of the best. And when you're done be sure to check out the nine S&P 500 stocks to sell.

TheStreet Ratings, TheStreet's proprietary ratings tool, projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

Note: Year-to-date returns are based on June 19, 2015 closing prices.

CSCO Chart CSCO data by YCharts

1. Cisco Systems Inc. (CSCO)
Industry: Technology/Communications Equipment
Market Cap: $147.6 billion
Rating: Buy, A
Year-to-date return: 4.3%

Cisco Systems, Inc. designs, manufactures, and sells Internet Protocol (IP) based networking products and services related to the communications and information technology industry worldwide.

TheStreet said: "We rate CISCO SYSTEMS INC (CSCO) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, notable return on equity, reasonable valuation levels and increase in net income. We feel its strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • CSCO's revenue growth has slightly outpaced the industry average of 0.6%. Since the same quarter one year prior, revenues slightly increased by 5.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Communications Equipment industry and the overall market, CISCO SYSTEMS INC's return on equity exceeds that of both the industry average and the S&P 500.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Communications Equipment industry. The net income increased by 11.4% when compared to the same quarter one year prior, going from $2,187.00 million to $2,437.00 million.

 

 

 

DIS Chart DIS data by YCharts

2. Walt Disney Co. (DIS)
Industry: Consumer Goods & Services/Movies & Entertainment
Market Cap: $191 billion
Rating: Buy, A+
Year-to-date return: 19.6%

The Walt Disney Company, together with its subsidiaries, operates as an entertainment company worldwide. The company operates in five segments: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products, and Interactive.

TheStreet said: "We rate DISNEY (WALT) CO (DIS) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in net income, notable return on equity and good cash flow from operations. We feel its strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • DIS's revenue growth has slightly outpaced the industry average of 3.8%. Since the same quarter one year prior, revenues slightly increased by 7.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • DISNEY (WALT) CO has improved earnings per share by 13.9% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, DISNEY (WALT) CO increased its bottom line by earning $4.25 versus $3.38 in the prior year. This year, the market expects an improvement in earnings ($5.08 versus $4.25).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Media industry average. The net income increased by 10.0% when compared to the same quarter one year prior, going from $1,917.00 million to $2,108.00 million.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. In comparison to the other companies in the Media industry and the overall market, DISNEY (WALT) CO's return on equity significantly exceeds that of the industry average and is above that of the S&P 500.
  • Net operating cash flow has increased to $2,918.00 million or 15.47% when compared to the same quarter last year. In addition, DISNEY (WALT) CO has also modestly surpassed the industry average cash flow growth rate of 15.07%.

 

 

HD Chart HD data by YCharts

3. The Home Depot Inc. (HD)
Industry: Consumer Goods & Services/Home Improvement Retail
Market Cap: $146 billion
Rating: Buy, A+
Year-to-date return: 7.1%

The Home Depot, Inc. operates as a home improvement retailer. It operates The Home Depot stores that sell various building materials, home improvement products, and lawn and garden products, as well as provide installation, home maintenance, and professional service programs to do-it-yourself, do-it-for-me, and professional customers.

TheStreet said: "We rate HOME DEPOT INC (HD) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, increase in net income, revenue growth and notable return on equity. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 39.44% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, HD should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • HOME DEPOT INC has improved earnings per share by 21.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, HOME DEPOT INC increased its bottom line by earning $4.72 versus $3.75 in the prior year. This year, the market expects an improvement in earnings ($5.28 versus $4.72).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Specialty Retail industry average. The net income increased by 14.5% when compared to the same quarter one year prior, going from $1,379.00 million to $1,579.00 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 9.1%. Since the same quarter one year prior, revenues slightly increased by 6.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Specialty Retail industry and the overall market, HOME DEPOT INC's return on equity significantly exceeds that of both the industry average and the S&P 500.

 

 

 

UNH Chart UNH data by YCharts

4. UnitedHealth Group Inc. (UNH)
Industry: Health Care/Managed Health Care
Market Cap: $114.5 billion
Rating: Buy, A+
Year-to-date return: 19%

UnitedHealth Group Incorporated operates as a diversified health and well-being company in the United States.

TheStreet said: "We rate UNITEDHEALTH GROUP INC (UNH) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, increase in net income, revenue growth and notable return on equity. We feel its strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Powered by its strong earnings growth of 32.72% and other important driving factors, this stock has surged by 48.83% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, UNH should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • UNITEDHEALTH GROUP INC has improved earnings per share by 32.7% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, UNITEDHEALTH GROUP INC increased its bottom line by earning $5.70 versus $5.50 in the prior year. This year, the market expects an improvement in earnings ($6.26 versus $5.70).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Health Care Providers & Services industry average. The net income increased by 28.6% when compared to the same quarter one year prior, rising from $1,099.00 million to $1,413.00 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 13.1%. Since the same quarter one year prior, revenues rose by 12.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Health Care Providers & Services industry and the overall market, UNITEDHEALTH GROUP INC's return on equity exceeds that of both the industry average and the S&P 500.

 

 

UTX Chart UTX data by YCharts

5. United Technologies Corp. (UTX)
Industry: Industrials/Aerospace & Defense
Market Cap: $102.3 billion
Rating: Buy, A
Year-to-date return: -0.09%

United Technologies Corporation provides technology products and services to building systems and aerospace industries worldwide.

TheStreet said: "We rate UNITED TECHNOLOGIES CORP (UTX) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, increase in net income, largely solid financial position with reasonable debt levels by most measures, notable return on equity and increase in stock price during the past year. We feel its strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • UNITED TECHNOLOGIES CORP has improved earnings per share by 19.7% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, UNITED TECHNOLOGIES CORP increased its bottom line by earning $6.82 versus $6.22 in the prior year. This year, the market expects an improvement in earnings ($7.00 versus $6.82).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Aerospace & Defense industry average. The net income increased by 17.6% when compared to the same quarter one year prior, going from $1,213.00 million to $1,426.00 million.
  • The debt-to-equity ratio is somewhat low, currently at 0.77, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that UTX's debt-to-equity ratio is low, the quick ratio, which is currently 0.65, displays a potential problem in covering short-term cash needs.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Aerospace & Defense industry and the overall market on the basis of return on equity, UNITED TECHNOLOGIES CORP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • UTX, with its decline in revenue, slightly underperformed the industry average of 3.4%. Since the same quarter one year prior, revenues slightly dropped by 1.4%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

 

 

VZ Chart VZ data by YCharts

6. Verizon Communications Inc. (VZ)
Industry: Telecom/Integrated Telecommunication Service
Market Cap: $193.6 billion
Rating: Buy, A
Year-to-date return: 1.5%

Verizon Communications Inc., through its subsidiaries, provides communications, information, and entertainment products and services to consumers, businesses, and governmental agencies worldwide.

TheStreet said: "We rate VERIZON COMMUNICATIONS INC (VZ) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income, good cash flow from operations, expanding profit margins and notable return on equity. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • VZ's revenue growth has slightly outpaced the industry average of 2.9%. Since the same quarter one year prior, revenues slightly increased by 3.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Diversified Telecommunication Services industry average. The net income increased by 6.9% when compared to the same quarter one year prior, going from $3,947.00 million to $4,219.00 million.
  • Net operating cash flow has increased to $10,169.00 million or 42.44% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -0.54%.
  • The gross profit margin for VERIZON COMMUNICATIONS INC is rather high; currently it is at 62.18%. Regardless of VZ's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, VZ's net profit margin of 13.19% compares favorably to the industry average.
  • VERIZON COMMUNICATIONS INC's earnings per share declined by 11.3% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, VERIZON COMMUNICATIONS INC reported lower earnings of $2.51 versus $4.00 in the prior year. This year, the market expects an improvement in earnings ($3.84 versus $2.51).

 

 

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