The Dow Jones Industrial Average is the oldest stock market index, and one in which the highest quality companies invest.
Although investors sometimes regard the Dow as a boring index, plenty of stocks brim with excitement. Remember, the boring trait is valuable during corrections due to the of its blue-chip stocks. Also, some of these defensive companies can be the best innovators.
Today, several companies on the Dow offer a combination of defense and growth. First, they are defensive due to their stable earnings and robust balance sheets. Second, they offer growth from participating in secular tailwinds like artificial intelligence and .
These strengths land these favorite Dow stocks among Wall Street analysts’ top picks. Analysts rate these three stocks buy or better and expect further upside. They are solid additions to any portfolio.
Amazon (AMZN)
Amazon (NASDAQ:AMZN) is a bellwether that several industries. First, it’s an e-commerce leader and the top cloud service provider by market share through Amazon Web Services (AWS). Its dominance extends beyond these two areas to freight and logistics, advertising and entertainment.
Several secular tailwinds explain the reason it’s one of the favorite Dow stocks among analysts. First, the shift in shopping has moved from physical retail stores to online commerce. According to Boston Consulting Group, global annually through 2027. As a result, e-commerce will account for 41% of global retail sales by 2027 from 18% in 2017.
Another major growth driver for Amazon is artificial intelligence (AI). First, AWS offers the most expansive compute instances for training and inference. Second, it provides Bedrock, a managed service with several high-performing foundation models that enable companies to build and scale AI applications. Third, the company is building generative AI applications for customer subscriptions.
Inevitably, e-commerce growth and artificial intelligence will power AMZN stock higher. Wall Street , as reflected by 51 buy and 7 overweight ratings. Analysts expect a substantial upside with an average price target of $207.
Microsoft (MSFT)
Besides Nvidia (NASDAQ:NVDA), no other company has capitalized more on the AI trend than Microsoft (NASDAQ:MSFT). In February 2023, CEO Satya Nadella stirred excitement when he stated that they would . It was a warning shot that Bing, powered by AI, would attempt to challenge Google Search.
Although the search threat hasn’t panned out, the tech giant is leading AI innovation. First, Azure AI has become the for building, training and deploying AI models and applications. Notably, Microsoft Azure grew 30% year over year (YOY) last quarter compared to AWS’s 13% growth, highlighting its AI services advantage.
Since Microsoft is also a productivity company, it has developed Copilot for most of its productivity applications. In September 2023, it powered by AI. Copilot simplifies tasks across Microsoft 365 applications like Excel, PowerPoint, Word, Outlook and Teams. Notably, the company is already monetizing these services, charging $30 per user monthly.
With Microsoft positioned to benefit from AI, it has become one of the favorite Dow stocks to buy. The tech giant is already showing tangible AI benefits in its earnings. Unsurprisingly, the stock is near all-time highs and analysts .
Visa (V)
Aside from the AI trade, investors can consider other favorite Dow stocks. A great option is Visa (NYSE:V), which will continue to benefit from the shift from cash to digital payments. The company provides that facilitate most credit card and mobile wallet payments.
As the largest open credit card network, Visa competes against peers Mastercard (NYSE:MA) and China-based Union Pay. It’s worth noting that Visa doesn’t extend credit. Instead, it acts as a middleman between credit card issuers (financial institutions) and merchants, earning fees on each transaction.
Over the years, doubters have forecasted Visa’s decline due to the emergence of fintech companies. Instead, the card network has only strengthened its stronghold in the payments ecosystem. Today, Visa has partnered with a majority of fintechs, such as Block (NYSE:SQ), PayPal (NASDAQ:PYPL), and Remitly (NASDAQ:RELY).
Notably, Visa’s greatest competition is cash. According to , cash usage has declined rapidly, losing 20 percentage points of total global payments in the last five years. As payments shift to card and digital payments, room for growth enlarges.
Finally, Visa is a payment tollbooth that benefits from network effects. Hence, it’s one of my favorite Dow stocks. The more users on its network, the more valuable it is to its merchants, which in turn enhances convenience.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
