While the Dow Jones 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.
Not all Dow Jones stocks are worth owning - which is why we built StockStory to help you invest wisely. Keeping that in mind, here are three Dow Jones stocks that don’t make the cut and some better choices instead.
Home Depot (HD)
Market Cap: $356 billion
Founded and headquartered in Atlanta, Georgia, Home Depot (NYSE: HD) is a home improvement retailer that sells everything from tools to building materials to appliances.
Why Are We Wary of HD?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Commoditized inventory, bad unit economics, and high competition are reflected in its low gross margin of 33.4%
- Free cash flow margin shrank by 1.5 percentage points over the last year, suggesting the company is consuming more capital to stay competitive
At $354.70 per share, Home Depot trades at 22.8x forward price-to-earnings. To fully understand why you should be careful with HD, check out our full research report (it’s free).
3M (MMM)
Market Cap: $78.63 billion
Producers of the first asthma inhaler, 3M Company (NYSE: MMM) is a global conglomerate known for products in industries like healthcare, safety, electronics, and consumer goods.
Why Do We Avoid MMM?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Earnings per share have contracted by 3.8% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
3M’s stock price of $143.63 implies a valuation ratio of 19x forward price-to-earnings. Check out our free in-depth research report to learn more about why MMM doesn’t pass our bar.
Cisco (CSCO)
Market Cap: $242.1 billion
Founded in 1984 by a husband and wife team who wanted computers at Stanford to talk to computers at UC Berkeley, Cisco (NASDAQ: CSCO) designs and sells networking equipment, security solutions, and collaboration tools that help businesses connect their systems and secure their digital operations.
Why Is CSCO Risky?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 6.3 percentage points
- Eroding returns on capital suggest its historical profit centers are aging
Cisco is trading at $61.30 per share, or 16.1x forward price-to-earnings. Read our free research report to see why you should think twice about including CSCO in your portfolio.
Stocks We Like More
The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.
Take advantage of the rebound by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.
