While investors might not desire anything less than the most exciting investment opportunities following the wild ride last year, 2022 may be the moment for Dow sleeper stocks to buy. After all, the companies listed in the Dow 30 didn’t get there as part of a fly-by-night operation. Though not commanding the most heart-pounding storylines, these blue chips have the potential to help keep your portfolio afloat in times of stress.
Fundamentally, the Federal Reserve changed the broader monetary and economic paradigm. Rather than an accommodative framework which in many ways actively encouraged market speculation, the Fed now seeks to tighten monetary excesses. That’s deflationary, which incentives value over sheer growth.
In this environment, here are seven of the best Dow sleeper stocks to buy that may outperform.
| HD | Home Depot | $267.20 |
| WBA | Walgreens Boots Alliance | $32.76 |
| JPM | JPMorgan Chase | $107.21 |
| MRK | Merck | $86.40 |
| IBM | International Business Machines | $122.42 |
| PG | Procter & Gamble | $135.74 |
| AXP | American Express | $137.96 |
Home Depot (HD)
Typically a steady hand among Dow sleeper stocks, home improvement retailer Home Depot (NYSE:HD) printed an uncharacteristic amount of red ink so far this year, down a staggering 34%. Fundamentally, the company likely suffered from rising interest rates. Yes, higher rates after a long period of dovish monetary policy will present a shock to any company. However, Home Depot was among the leading beneficiaries of the incredible housing boom last year.
To quickly recap, a combination of fiscal stimulus and easy monetary policy allowed many folks to acquire real estate. Additionally, affluent members of society looked to combat the long-term erosion of purchasing power via pivoting to housing to protect their wealth.
Today, this macro environment has been flipped on its head. Higher rates equate to higher borrowing costs. In turn, housing prices have dipped. Thus, expectations are that renovation budgets could take a hit, especially as many return to the office.
Now for the 5,000 IQ play: if interest rates revert lower in a recessionary environment, this may spark a second housing boom, as previously priced-out buyers can move in. It’s a risky narrative, but one that could make HD one of the Dow sleeper stocks to buy.
Walgreens Boots Alliance (WBA)
One of the hardest-hit Dow sleeper stocks, Walgreens Boots Alliance (NASDAQ:WBA) admittedly presents a scary profile, even for contrarians. On a year-to-date basis through the Sept. 23 session, WBA hemorrhaged more than 38% of market value. That’s significantly more than the benchmark equity indices.
At the same time, if we’re being honest, Walgreens likely deserves at least some of the red ink. Initially this year, many bought into the idea that WBA was one of the Dow sleeper stocks. For instance, the company enjoyed tailwinds from its coronavirus vaccine and testing-related revenue channels. Later in the year, though, management delivered a less-than-stellar outlook, highlighting a number of challenges for the business.
At the same time, an argument exists that Walgreens has fallen enough already. Fundamentally, the company still enjoys tailwinds because of greater awareness of infectious disease protocol and management. Should another breakout occur, WBA stock provides nice cyclical upside for those seeking beaten-down Dow sleeper stocks.
JPMorgan Chase (JPM)
As strange as it might sound, the deflationary dynamic stemming from tighter monetary policy could benefit JPMorgan Chase (NYSE:JPM). In theory, banks benefit from a rising interest rate environment because their net interest margins increase. In other words, banks’ lending products become much more profitable. That said, higher interest rates also means slower business activity due to more onerous borrowing costs. And that’s a key reason why JPM stock has shed 32.5% year-to-date.
Now, the reason why deflation could be positive for JPMorgan comes down to the company’s wealth management arm. To be blunt, a monkey throwing darts at a board can potentially be a solid financial advisor during an inflationary cycle. With inflation, the dollar loses purchasing power, incentivizing active investing.
In a deflationary environment, the opposite is true. Investors have more options, with bonds and cash appearing much more attractive. Thus, JPMorgan’s vast army of educated and experienced financial advisors could induce more cash to enter the markets, spurring relative outperformance. This company’s wealth management division is the best of the best, making JPM one of the Dow sleeper stocks to consider.
Merck (MRK)
Let’s be honest. In the shadow of meme stocks and cryptocurrencies, Merck (NYSE:MRK) comes off as incredibly boring. At the same time, the pharmaceutical giant presents an incredibly relevant business profile. That’s why MRK stock is up 13% year-to-date while the major equity indices plunged. Perhaps most importantly, with the fading of the Covid-19 pandemic, Merck enjoys a massive fundamental catalyst.
Step back down on Memory Lane for a moment. During the initial onslaught of Covid-19, many feared the outbreak. I think we all remember the images of people dropping dead on the street, a scene out of a horror film. This dynamic caused many people to avoid hospital visits because of infection concerns.
With the distribution of the Covid-19 vaccine along with general cabin fever, fear around the Covid-19 pandemic is abating. Accordingly, the company’s solutions for cancer or other long-term diseases such as Keytruda may finally see the kind of adoption many previously expected.
International Business Machines (IBM)
Arguably, it doesn’t get much sleepier among Dow sleeper stocks than International Business Machines (NYSE:IBM). A boring legacy technology firm in the best of times, IBM mostly garners positive attention from investors for its dividend. With a forward yield of 5.38%, this company’s passive income profile remains a compelling selling point. After all, with inflation taking a bite out of everything, every bit of mitigation helps.
However, what I appreciate about IBM is that it features an “old faithful” type of investment storyline. Unlike the flashy tech names, this clear example of a Dow sleeper stock doesn’t attract the limelight. Today, this factor is paying off dividends (literally and figuratively). While IBM stock is down 10% for the year so far, that’s a superior performance relative to the tech sector.
Moreover, I appreciate that management is pivoting from hardware to the cloud. Honestly, the transition is taking longer than investors would like. However, over time, I think this transition could pay off for patient investors looking for a place to hide.
Procter & Gamble (PG)
One sleeper stock that features a higher-than-average probability of surviving and thriving is Procter & Gamble (NYSE:PG). As a household goods giant, the company presents a painfully boring profile. I can’t imagine anybody waking up in the morning, logging onto the trading desk and bidding up PG stock on the basis of toiler paper fundamentals.
Still, the lessons of Covid-19 brought a harsh awakening for consumers. During the initial onslaught of the pandemic, household goods such as toilet paper and hand sanitizer essentially represented gold bricks. Just when you thought that global supply chain disruptions couldn’t take a turn for the worst, they did with a more recent shortage of feminine hygiene products.
It’s also possible that with the ongoing conflict in Ukraine – a conflict that shows no sign of slowing down – supply chain disruptions could worsen. After all, we’re dealing with countries that export plenty of commodities that we took for granted prior to the new normal. Accordingly, PG stock is one that’s on my watch list right now.
American Express (AXP)
As a financial services firm that specializes in issuing credit cards, American Express (NYSE:AXP) doesn’t shout “Dow sleeper stocks to buy” to many.
Why?
Well, This company’s business model may not benefit from this tighter monetary policy environment. As borrowing costs increase, consumers naturally seek to save money, not to spend it.
That said, American Express caters to a more affluent user base. Notably, the company’s premium-level Platinum cardholders have an average net worth of $4.3 million. What’s more, this customer base produces an average income of $474,000. In other words, we’re talking about a user demographic that may not be as impacted by inflation, deflation or whatever-flation.
American Express is a company that still provides risk, don’t get me wrong. Down nearly 17% for the year so far, the company itself isn’t immune to market pressures. Nevertheless, the company’s superior performance relative to benchmark equity indices may be a positive sign for long-term investors.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.