The Dow Jones Industrial Average (DJIA) is known for its heavier weighting toward value stocks than the broader S&P 500 (SPX) or the tech-heavy Nasdaq (NDX). Last year, the Dow’s unique weighting of value-conscious securities helped it dampen the bear market downside.
Amid the last month and change of gains, certain resilient Dow stocks have not performed that well. For instance, Walmart (NYSE:WMT) stock is only up 1.7% year-to-date, while Coca-Cola (NYSE:KO) shares are down 3.7%, all while the broader S&P 500 is up over 8% at the time of writing. Not much has changed (other than sentiment) in recent months. As such, I like the following two plays more today than I did at the end of the last year.
In any case, analysts continue to favor the following Dow stocks for the year ahead, regardless of how much impact a recession will have on stock valuations. Therefore, let’s weigh in on the two Dow stocks that analysts still expect gains from in 2023.
Walmart is a grocery-heavy retailer that did a great job of holding its own last year. Over the past year, the stock is up 10.3%. Though, there was a bear market moment for the name back in the summer. At these levels, I am bullish on the stock.
In recent months, Walmart stock has been dragging its feet. Still, analysts continue to favor the name, with Barclays recently rewarding an overweight rating.
The defensive traits of Walmart are certainly nothing new to investors. With inflation lingering and an economic downturn potentially on the horizon, Walmart certainly seems like a somewhat marked-down way to play defense.
Further, Walmart’s tech prowess should not go unnoticed. As the firm beefs up its grocery delivery capabilities and digital presence, I do see room for the firm to take a bit of share from grocery rivals in a recession year.
At writing, the stock trades at 23.6 times forward earnings. That’s about in line (only 4.9% higher) with its five-year historical average.
What is the Price Target for WMT Stock?
Analysts have a “Strong Buy” rating on Walmart based on 25 Buys and five Holds assigned in the past three months. The average WMT stock price target of $162.17 implies 11.1% upside potential.
KO shares have been holding steady on a relative basis, as expected. With the stock, you’re not getting much in the way of surprises. What you will get is a sky-high moat protecting its cash flows through thick and thin. Still, for now, I am neutral on the stock.
During the pandemic, Coke had uncharacteristic swings as lockdowns weighed on demand. Nowadays, Coke is back to its usual form, moving less in line with market averages. The 0.49 beta makes KO stock a smoother ride.
Amid inflation, Coke has boasted impressive pricing power. That’s to be expected with such an iconic brand. However, Bank of America (NYSE:BAC) analysts believe Coke’s price moves could capture the attention of regulators. Indeed, soft drink prices are getting expensive, and Coke may be too good at exercising its pricing power. Despite this, Bank of America remains upbeat, with a Buy recommendation on the stock.
Personally, I think regulators have bigger fish to fry to drive down prices for consumers amid inflation. If anything, pricier sugary beverages may be a good thing as consumers reconsider the price hikes at the grocery store. For now, though, consumers seem fine opening up their wallets for a taste that’s unmistakable to many.
Looking further ahead, there are opportunities for the stock to regain its fizz amid the stock’s recent stall (shares have flatlined over the past year). Innovative new drinks targeting millennials, in particular, could help make demand sweeter.
At 26.1 times trailing earnings, KO is trading in line with the non-alcoholic beverage industry average of 26.3 times. Given the power of the brand, the low beta, the 2.95% dividend yield, and the company of fellow investor Warren Buffett, I think a case could be made that Coke shares deserve a premium multiple.
What is the Price Target for KO Stock?
Analysts have a “Strong Buy” rating on Coke based on five Buys and one Hold rating assigned in the past three months. The average KO stock price target of $67.00 implies 10.6% upside potential.
So far in 2023, it’s been a nice risk reversal, with some of the hard-hit tech plays recovering a considerable amount of ground. However, there’s still a long way to go to recoup last year’s losses.
With some help from the Fed, tech can continue its run. Nevertheless, investors must not forget that the same recession fears weighing down markets last year are still in play after the latest bout of relief.
With that in mind, certain defensive Dow stocks seem like great additions to portfolios seeking to reduce volatility. Currently, analysts are bullish on Walmart and Coca-Cola, expecting about 11% upside potential from both.