After a year in which we saw just about everything, one sector continued to dominate, and that was technology. So the question remains whether to stay with big tech again, or is there a change coming? Many across Wall Street are fading tech some and looking at cyclical, value stocks, industrials and more. While positive earnings could continue to drive the major indexes higher in 2021, a very overbought and fully valued market could offer some painful January indigestion.
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24/7 Wall St. decided to screen the 30 stocks in the venerable Dow Jones industrial average looking for companies that paid solid dividends and could offer investors perhaps a smoother ride in 2021. We also looked for sectors and companies that could see some rotation next year. We found five stocks that look like solid total return ideas with upside and reliable dividends.
All five are rated Buy at major Wall Street firms we cover, but it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Caterpillar
This large cap leader was hit by trade worries in 2019, but has rallied nicely this year off the March lows. Caterpillar Inc. (NYSE: CAT) is the world’s largest manufacturer/marketer of construction equipment and is also a leading manufacturer of diesel engines and turbines for transport and industrial applications. It is also one of the most valuable brands in the world.
The company principally operates through three primary segments (Construction Industries, Resource Industries and Energy & Transportation). It also provides financing and related services through its Financial Products segment.
Goldman Sachs said this after the quarterly results were released:
Following Caterpillar’s mixed third quarter results, we raise our 2020-22 EPS by 4% on average as stronger Construction Industries sales forecasts are partly offset by lower Energy & Transportation margin forecasts. On the positive side, the quarter revealed a backlog inflection in Construction Industries, inventory destock approaching historical trough , a sequential improvement in pricing driving a 1% margin beat versus our estimate. Beyond the quarter, momentum is building for the company’s autonomous mining trucks (comments imply 60 units delivered in 4Q), and we note that Caterpillar has commercial hydrogen-powered turbines, positioning the company to participate in a hydrogen infrastructure investment cycle if adoption of hydrogen emerges.
Shareholders receive a 2.61% dividend. The Goldman Sachs price target for the shares is $192, and the Wall Street consensus target is $173.75. Caterpillar stock closed most recently at $179.56 a share.
Chevron
This energy giant is a safer way for investors looking to be positioned in its sector, and it is the top energy sector pick for 2021 at BofA Securities. Chevron Corp. (NYSE: CVX) is a U.S.-based integrated oil and gas company, with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals. The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas.
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The company gave some solid 2021 guidance earlier this month, and the analyst noted this:
Chevron provided guidance around capital expenditures through 2025. On a headline basis, the company expects to spend $14 billion in 2021 ($9.7 billion in cash capital expenditures), and $14-$16 billion annually in 2022-2025 relative to Chevron’s prior out year guidance of $19-22 billion, which excluded the Noble transaction. The company remains focused on investments in the Permian, other unconventionals, and the Gulf of Mexico.
Shareholders receive a 6.05% dividend, which the analysts feel comfortable will remain at current levels. BofA Securities has a $97 price target, but the consensus target is higher at $101.78. Chevron stock closed most recently at $85.33.
Johnson & Johnson
With a diverse product base and a very popular and solid brand, this is among the most conservative big pharmaceutical plays, and 44% of fund managers own the stock. Johnson & Johnson (NYSE: JNJ) is one of the top market cap stocks in the health care sector and raised its dividend this year for the 56th consecutive year.
With everything from medical devices to over the counter health items and prescription drugs, the company remains one of the most diversified health care names on Wall Street.
The health care giant also has one of the most exciting pipelines of new drugs in the sector. That combined with the solid over-the-counter product business makes the stock an outstanding holding for conservative accounts with a long-term investment outlook. The company generates a little over half of its sales in international markets, which are expected to see higher spending on health care over the next 10 years and beyond.
The $0.95 per share dividend was raised in the spring to $1.01, which equals a 2.65% yield. The $180 Goldman Sachs price target compares with a $167.35 consensus target. Johnson & Johnson stock closed at $152.47 per share.
McDonald’s
The fast-food giant continues to revamp both stores and the menu, and it is a solid pick for more conservative accounts. McDonald’s Corp. (NYSE: MCD) is the world’s leading global food-service retailer with over 39,000 locations serving approximately 69 million customers in over 100 countries each day. More than 80% of McDonald’s restaurants worldwide are owned and operated by independent local businesspersons.
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The company has built a product pipeline including a new chicken sandwich, a McPlant line and follow-on celebrity promos. BofA Securities feels the key driver of the McDonald’s story will shift to a technology scale that competitors will struggle to replicate. This tech evolution is supporting a wave of consolidation, while it creates pressure on small and mid-tier players.
McDonald’s stock investors receive a 2.44% dividend. BofA Securities has set its price target at $250. The consensus target is $241.53, and shares were last seen trading at $211.39.
24/7 Wall St.Nike
This is one of the most recognized and most valuable brands in the world, and the stock is on the Goldman Sachs Conviction List. Nike Inc. (NYSE: NKE) designs, develops, markets and sells athletic footwear, apparel, equipment and accessories worldwide. The company offers Nike brand products in six categories, including running, Nike basketball, the Jordan brand, football, training and sportswear
The company also markets products designed for kids, as well as for other athletic and recreational uses, such as American football, baseball, cricket, golf, lacrosse, skateboarding, tennis, volleyball, walking, wrestling and other outdoor activities. It has apparel with licensed college and professional team and league logos.
Nike also sells a line of performance equipment and accessories comprising bags, socks, sport balls, eyewear, timepieces, digital devices, bats, gloves, protective equipment and other equipment for sports activities, as well as various plastic products to other manufacturers. Further, it provides athletic and casual footwear, apparel and accessories under the Jumpman trademark; casual sneakers, apparel and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron and Jack Purcell trademarks; and action sports and youth lifestyle apparel and accessories under the Hurley trademark.
When the company posted stellar quarterly results, Goldman Sachs said this:
Nike reported strong fiscal second quarter results, with a solid EPS beat driven by strong digital and international growth, further boosted by cost control and margin delivery despite restructuring expenses. We come away from the quarter with increased confidence in Nike’s DTC and digital transformation, and see significant upside to sales, margins, and returns as the company executes on this channel shift.
Shareholders receive just a 0.78% dividend. Goldman Sachs has raised the price target to $164 from $140. The consensus target is $161.03, and Nike stock closed at $141.60.
These five top companies in the Dow Jones industrial average are decidedly not technology companies, but they do exploit technology to the max to maintain consistent market leadership in their respective sectors and silos. While they maybe not as exciting as electric vehicle makers and artificial intelligence leaders, they make sense for growth investors looking for dividends and perhaps a touch more safety after a volatile and crazy 2020.
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