While the Dow Jones (^DJI) represents industry leaders, not every stock in the index is a safe bet. Some are facing headwinds like declining demand, rising costs, or disruptive new competitors.
Just because a company is in the Dow Jones doesn’t mean it’s a great investment, and StockStory is here to help you separate winners from laggards. That said, here is one Dow Jones stock that will likely remain a market leader and two that may struggle.
Market Cap: $88.97 billion
Widely known for its success in the paint industry, Sherwin-Williams (NYSE:SHW) is a manufacturer of paints, coatings, and related products.
Why Does SHW Fall Short?
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Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
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Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 2.5%
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Free cash flow margin dropped by 8.5 percentage points over the last five years, implying the company became more capital intensive as competition picked up
At $355 per share, Sherwin-Williams trades at 29x forward P/E. Check out our free in-depth research report to learn more about why SHW doesn’t pass our bar.
Market Cap: $182.7 billion
Formed in 1984 as Bell Atlantic after the breakup of Bell System into seven companies, Verizon (NYSE:VZ) is a telecom giant providing a range of communications and internet services.
Why Do We Steer Clear of VZ?
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Customer additions have disappointed over the past two years, indicating the company’s value proposition may not be resonating
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Projected 2.2 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
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Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Verizon is trading at $43.35 per share, or 9.2x forward P/E. To fully understand why you should be careful with VZ, check out our full research report (it’s free).
Market Cap: $3.40 trillion
Founded in 1993 by Jensen Huang and two former Sun Microsystems engineers, Nvidia (NASDAQ:NVDA) is a leading fabless designer of chips used in gaming, PCs, data centers, automotive, and a variety of end markets.
Why Is NVDA a Good Business?
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Annual revenue growth of 140% over the last two years was superb and indicates its market share increased during this cycle
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Share repurchases over the last five years enabled its annual earnings per share growth of 80.2% to outpace its revenue gains
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Robust free cash flow margin of 48.8% gives it many options for capital deployment, and its growing cash flow gives it even more resources to deploy
