This week did not have a good start for oil super major Exxon (NYSE 🙂 as the world's most famous equity benchmark, the, removed the oil giant from the meg cap index as part of its realignment.
Exxon, along with Pfizer (NYSE 🙂 and Raytheon (NYSE 🙂 Technologies (NYSE :), were kicked off the 124-year-old stock index Monday to make way for Honeywell International (NYSE :), Salesforce.com (NYSE: ) and Amgen (NASDAQ :).
The change became inevitable after Apple (NASDAQ 🙂 – which currently represents 12% of the 30-stock index – announced a stock split that reduced the influence of computer and software companies on the price-weighted average.
Below we analyze the three new members of Dow and their appeal to investors considering buying these shares.
1. Honeywell
Honeywell's diversified technology and manufacturing portfolio provides a lifeline for many industries, including homes and buildings, aerospace, defense and space. The company's enduring competitive advantage is so great that it is difficult to challenge its dominance on a global scale.
Darius Adamczyk, in his third year as CEO, tries to transform the 135-year-old industrial giant into a company with a start-up culture. Since taking the helm, he has introduced more software-based products to help customers better manage their supply chains.
Despite Honeywell's strong portfolio, however, Honeywell's business has been hit hard by the COVID-19 pandemic, which drastically weakened the aerospace unit, its largest revenue generator. That unit's revenues fell 28% as aircraft manufacturers cut production and airlines faced a sudden collapse in travel demand.
Adamczyk told the Wall Street Journal:
“This second quarter has been one of the most challenging quarters Honeywell has ever faced. The widespread impact of the COVID-19 pandemic and oil price volatility impacted many of our corporate and end markets. "
Despite this sudden shock and loss of sales, Honeywell was still able to post a quarterly net profit of $ 1.08 billion, aided by its medical supplies, including N-95 masks and other products.
Shares of Honeywell, which closed at $ 164.53 yesterday, after a 3.24% rise on that day, offer good value in this difficult economic environment.
Honeywell International 1-Year Chart.
Some investors would see buying this name as a risky bet, especially with the industrial economy facing so many troubles, but we still see value in this trade and advise investors to take a long-term position. It is difficult to find an industrial stock as well prepared as HON to perform in the rapidly changing economy.
2. Salesforce.com
Salesfore.com, which sells software and cloud-based services to enterprise customers, has grown tremendously in recent years following a series of acquisitions – part of its plan to diversify its revenue base and drive further growth.
The San Francisco-based customer relationship management company bought software maker Tableau Software for $ 15.3 billion last year, its largest transaction to date. The deal was part of the effort to expand into the business intelligence market.
The latest edition of the company shows that these bets are starting to pay off. Salesforce has been profitable for 10 of the 12 most recent quarters, and acquisitions have made the company less dependent on its core Sales Cloud product.
Founded in 1999, Salesforce was one of the best-performing stocks in the bull market after the global financial crisis, rising 27-fold since March 2009.
Salesforce.com 1-Year Chart.
Shares closed at $ 216.05 on Tuesday, after an increase of about 29% in 2020.
Investors and analysts are excited about Salesforce's growth prospects, even after the surprise departure of co-chief executive officer Keith Block early this year, leaving Marc Benioff as sole CEO once again.
Salesforce has an excellent track record of delivering consistently higher growth over the past decade. Despite a trimmed sales forecast for the current fiscal year, Wall Street remains confident in growth, especially after the latest acquisitions that provide the company with a broader presence in a number of key markets.
3. Amgen
With a market value of approximately $ 145 billion, Amgen is one of the largest biotechnology companies in the world.
The main drug for Amgen is Enbrel, or Etanercept, a tumor necrosis factor inhibitor used to treat arthritis. It also makes Prolia, a drug used to maintain bone density and often prescribed after cancer treatment, and Neulasta, which is given during chemotherapy to combat side effects.
Sales of the company's best-selling products, accounting for more than a quarter of the company's $ 24 billion, are declining as cheaper competitors enter the market.
Amgen's stock has barely changed in 2020 and is underperforming biotechnology companies.
Amgen 1-year chart.
They closed at $ 248.22 yesterday, up 5.37% on that day.
At a valuation of 20 times earnings and 15 times future earnings, Amgen appears to be an attractive value game. The company has a strong portfolio of products and drugs in development that could justify buying its own stock.
Amgen also pays a dividend that has grown steadily in recent years. With an annual return of 2.7%, the quarterly payout is now $ 1.60 per share, compared to $ 0.61 per share in 2014.
