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If You Had to Choose 3 Dow Stocks for Value, Which Would You Pick?

Intel, Dow and Travelers are intriguing opportunities

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John Navin
Jul 28, 2021

Summary

  • Value is the central criterion.
  • Is the price-earnings ratio lower than most?
  • Is there a decent earnings record?
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If you were forced to pick three stocks for value among the Dow Jones Industrials, which would you choose? It’s the most narrowly focused of the indexes based on only 30 equities. Yet, it’s still widely followed and mentioned in the financial media. Let’s say you had find the best value in the old-school Dow Jones Industrial Average.

Plenty of metrics exist to help determine that characteristic. For the purposes of this article, the initial screening relies on price-earnings ratios, book value, the look of debt, whether a dividend is paid and the usual Benjamin Graham and

Warren Buffett (Trades, Portfolio) basic beginning measures.

Here are the ones that look the most interesting if absolutely required to pick:

Intel Corp. (

INTC, Financial)

Competition is fierce in the chip-making field, but since there’s an apparent shortage around the world, what Intel manufactures is needed. This is a favorable quality. The price-earnings ratio of 11.95 is among the lowest of the Dow stocks. It’s lower than chief competitor Advanced Micro Devices (

AMD, Financial), which has a price-earnings ratio of 38. The amount of long-term debt is greatly exceeded by shareholder equity, one of Graham’s most important measures. The dividend of 2.61% is nice. Intel’s earnings per share grew this year at a 4.9% pace. The five-year earnings per share growth rate is 16%. The stock trades at 2.53 book. Average daily volume is 24 million shares. The company’s price-to-free cash flow is 19.5, which compares to competitor Advanced Micro Device’s price-to-free cash flow ratio of 63.

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The price chart for Intel shows many ups and downs over the past two years. Right now, it looks as if the down stage is unfolding.

Dow Inc. (

DOW, Financial)

Dow's earnings growth this year is 167%. Analysts, however, expect negative earnings growth next year. That might explain, at least in part, why it’s trading at such a low price-earnings ratio of 11.65. The company has slightly more long-term debt than equity, a concern for the value investor, but not that unusual for an old DJIA component. The current ratio is a positive 1.1. Investors receive a decent 4.57% dividend. The price-to-free cash flow is 11. Dow hit a peak price of $71 in May and, after a decent sell-off, now trades at $61.

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Dow remains in an uptrend even after the recent selling. That’s a nice move from the pandemic lows of last year to now.

The Travelers Companies Inc. (

TRV, Financial)

Travelers has shown earnings growth this year of 6%. The five-year earnings per share growth metric is slightly negative. Analysts are predicting slightly positive growth next year. The price-earnings ratio of 10 is one of the lowest among the Dow 30. By comparison, property and casualty insurance competitor Chubb (

CB, Financial) sports a price-earnings ratio of 13.75 and competitor Progressive’s (PGR, Financial) price-earnings ratio sits at 10.32. Travelers’ price-to-free cash flow ratio is 5.82. Shareholder equity greatly exceeds long-term debt. The company pays a dividend yield of 2.36%, greatly exceeding that currently being offered by the U.S. Treasury’s 10-Year Note. The stock traded at $162 in May and could now be purchased at $48.

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Travelers Companies shows a powerful uptrend off the March 2020 lows and now seems to be consolidating some of the gains.

Closing thoughts

One thing to notice right away is how different these companies are compared to the tech and social media giants that stand out as growth stocks. Typically, you don’t hear mention too often of Intel, Dow and Travelers when you watch business media or read the financial press. It’s almost a different world from the deluge of information about Facebook (

FB, Financial), Apple (AAPL, Financial), Amazon (AMZN, Financial) and Microsoft (MSFT, Financial), for example.

On the other hand, since these stocks are components of the Dow Jones Industrials and their average daily volume is substantial, it’s easy to find extensive information about each of them.

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Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Not investment advice. Do your own research and always consult with a registered investment advisor before making any decisions.
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