The Hidden Gems of the Dow Jones

Of the 30 stocks in the Dow Jones Industrial Average, these four have the lowest price-earnings ratio and probably qualify as value stocks based on that metric and few others. 


With a market capitalization of $306 billion, Chevron Corp. (CVX) is one monster company that is headquartered in Houston and has extensive global operations. The price-earnings ratio is a mere 10.27.

This year’s earnings for the integrated oil and gas giant are up by 124.60% and up over the past five years by 37.10%. 

In June, RBC Markets upgraded the stock from sector perform to outperform with a price target of $165 to $180. Goldman Sachs, in July, took its rating for Chevron from neutral to buy with a price target of $187 and in August, Mizuho analysts upgraded the New York Stock Exchange-traded equity from neutral to buy with a price target of $205 to $209.

Now going for just under twice book value, the company’s shareholder equity greatly exceeds the amount of long-term debt. The price-to-free cash flow of 11.09 is better than decent for such an old-school Dow name.

Chevron pays a 3.73% dividend, a higher rate than, for example, American Express Co. (AXP) or Bank of America Corp. (BAC).

Goldman Sachs

The Goldman Sachs Group Inc. (GS), with a market capitalization of $107.22 billion, has a price-earnings ratio of 13.78. The big New York City-based investment banking firm, active in capital markets, trades at just over its book value with a significant load of long-term debt (9 times equity).

The company’s earnings this year are down by 49.40% – the past five-year earnings per share record shows growth of 8.70%. Citigroup, in July, downgraded its estimate of Goldman’s stock from buy to neutral with a price target of $370 to $400. In the same month, UBS analysts reiterated their buy rating with a price target of $385 to $400.

Goldman Sachs pays a 3.41% dividend.

JPMorgan Chase

JPMorgan Chase & Co. (JPM) is capitalized at $432 billion of market value and trades with a price-earnings ratio of 9.59. Earnings of the New York City bank are off this year by 31% and up over the past five years by 12.10%. Long-term debt is 1.15 times shareholder equity.

The stock was downgraded by Citigroup in July from buy to neutral with a price target of $160. At about the same time, Jeffries upgraded JPMorgan Chase from hold to buy with a price target of $149 to $165.

The company is paying a 2.68% dividend.

Verizon Communicatons

Verizon Communications Inc. (VZ) has a market capitalization of $138 billion, a price-earnings ratio of just 6.60 and trades at 1.46 times book. The price-to-free cash flow ratio is 11.17, while the price-sales ratio is just 1.06. The amount of long-term debt exceeds equity by 1.45 times.

The telecommunications services company is having a tough time making money this year: earnings are down by 4.90%. Over the past five years, they have grown by 9.20%.

Edward Jones downgraded the stock in July from buy to hold with no price target mentioned. Verizon is said to be suffering from far less smartphone demand than anticipated.

It is paying a dividend of 7.68%, an attractive yield for a component of the Dow Jones Industrial.

Final thoughts

These four big companies among the 30 Dow stocks are those that possess the first, best metric (for some) in identifying decent value stocks: low price-earnings ratios. Note that Chevron, for example, is a sizable component of Berkshire Hathaway’s (BRK.A) (BRK.B) portfolio. We will check back in one year and see how these four stocks did versus the average as a whole.

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