Among the Dow Industrials, a number of technology companies stand out as offering decent value plays.
Apple scores a 98 for Overall in our Quadrix stock-rating system. Wall Street is concerned that the law of large numbers is finally going to catch up to the company, that solid revenue growth is going to be hard to come by going forward. I disagree and believe the stock’s depressed valuation is an opportunity. (Be aware that Apple does not offer a DRIP and must be purchased via a broker.)
One of my favorite tech bargains in the Dow is Cisco Systems. The company sports attractive Quadrix numbers (Overall score of 91), a yield of more than 3% and a stock that is trading at a 16% discount to its 52-week high.
Other tech stocks with decent Quadrix scores and stock prices well of their highs include IBM (which has an Overall score of 71) and Intel(which has an Overall score of 74). While I don’t like either of these stocks as much as Apple and Cisco in the near term, I see both of these stocks offering potential for more patient investors, especially yield-hungry investors who will find the 3%-plus yields of both of these stocks attractive. Cisco, IBM, and Intel all offer direct-purchase plans.
Two remaining Industrial components worth a special look are American Express and Caterpillar. Despite Wall Street’s current dour opinion of the stock, American Express should show higher earnings next year. The loss of Costco as a client will hurt, but the company recently announced that its card will be accepted in Sam’s Clubs. The current price is discounting a lot of bad news. History shows that it is generally a good idea to buy these shares when they are trading in the discount bin.
Caterpillar is certainly not without its challenges. The mining and coal industries are under severe pressure, China’s economic machine is slowing, and the strong dollar continues to be a major headwind—all negatives for the stock. While things could get worse before they get better for Caterpillar, now is the time investors should be looking at heavy cyclicals like Caterpillar, when the stocks are dramatically out of favor. At a 33% discount to its high and with an Overall Quadrix score (of 62) that still puts it near the top third of all the stocks evaluated in our Quadrix universe, Caterpillar offers appeal for deep-value investors. Both American Express and Caterpillar offer direct-purchase plans.
Among Dow Transports, two value plays worth considering are Southwest Airlines (LUV) and Union Pacific (UNP).
Southwest Airlines and the airline sector overall offer interesting appeal in an environment of low energy prices, improving wages, and steady consumer spending. The fear in the airline sector is overcapacity, but companies such as Southwest appear to be showing some restraint in bringing new capacity online.