12 Best DOW Stocks To Buy According To Hedge Funds

Published on May 19, 2022 at 9:00 am by Omer Farooq in Hedge Funds, News

In this article, we will discuss the 12 best DOW stocks to buy according to hedge funds. If you want to explore similar stock options, you can also take a look at 5 Best DOW Stocks To Buy According To Hedge Funds.

The Dow Jones Industrial Average is a price-weighted index that consists of 30 renowned public companies listed on NASDAQ and NYSE. The index covers all industries less transportation and utilities.

The DJIA is a credible measure of the U.S. equity markets and is closely watched by veteran hedge fund investors and financial experts. Some of the most popular companies among elite hedge funds that are part of the DOW 30 include Apple Inc. (NASDAQ:AAPL), Visa Inc. (NYSE:V), and Microsoft Corporation (NASDAQ:MSFT).

Our Methodology

To compile the 12 best DOW stocks to buy according to hedge funds, we reviewed companies part of the DOW 30. We used Insider Monkey’s database which, as of the fourth quarter of 2021, tracks over 900 elite hedge funds. We then picked stocks that had the highest number of hedge fund holders and ranked them in increasing order.

Along with each stock, we mentioned the analyst and investor sentiment. We believe both these metrics are critical to gauging stock performance and future prospects and can benefit our readership in making informed investment decisions.

Best DOW Stocks To Buy According To Hedge Funds

12. The Coca-Cola Company (NYSE:KO)

Number of Hedge Fund Holders: 70

Beverages giant and a prominent dividend king, The Coca-Cola Company (NYSE:KO) is one of the best DOW stocks to buy according to hedge funds. At the end of the fourth quarter of 2021, 70 hedge funds were long The Coca-Cola Company (NYSE:KO) with stakes worth an astounding $28.61 billion. This is compared to 61 positions in the previous quarter with stakes of $25.13 billion.

On April 25, The Coca-Cola Company (NYSE:KO) released its earnings for the fiscal first quarter of 2022. The company reported earnings per share of $0.64 and beat EPS estimates by $0.06. Moreover, the company’s quarterly revenues grew 16.44% year over year and came in at $10.50 billion, beating market expectations by $670.79 million.

As of May 17, The Coca-Cola Company (NYSE:KO) has surged 19.47% over the past twelve months, boasts a forward dividend yield of 2.67%, and a price-to-earnings ratio of 26.70. The company has been consistent with rewarding dividends for over 59 years now, and on April 27 its board of directors declared a quarterly cash dividend of $0.44 per share quarterly dividend. The dividend is payable on July 1 to investors of record at the close of business on June 15.

This May, BofA added The Coca-Cola Company (NYSE:KO) to its “US 1” list, which is a collection of the firm’s best investment ideas that have “Buy” ratings from analysts. Moreover, shortly after the company’s Q1 2022 earnings release, Truist analyst Bill Chappell raised his price target on The Coca-Cola Company (NYSE:KO) to $75 from $70 and reiterated a Buy rating on the shares. Chappell contended that the company’s Q1 performance came in strong with over 18% organic growth, outperforming expectations significantly.

As of March 31, Berkshire Hathaway is the top shareholder in The Coca-Cola Company (NYSE:KO) with over 400 million shares of stock.

ClearBridge Investments mentioned The Coca-Cola Company (NYSE:KO) in its “Dividend Strategy” fourth-quarter 2021 investor letter. Here is what the firm said:

“Over the last year, we have repositioned our portfolio to navigate the course we see ahead. We added to more defensive areas of the portfolio like consumer staples (Coca-Cola). While the next month or two will likely prove choppy on account of the Omicron variant, we believe that Omicron, like Delta, represents a speed bump on the way to recovery rather than a true change in course. We see strong economic momentum continuing in 2022 and we expect interest rates to rise. After a decade of remarkably low rates, we would not be surprised if this change in direction is accompanied by some fits and starts in the markets. With our emphasis on pricing power, purposeful sector exposure, valuation discipline, and a strong dividend profile, we believe we are well-positioned for the year ahead.”

11. Intel Corporation (NASDAQ:INTC)

Number of Hedge Fund Holders: 72

Intel Corporation (NASDAQ:INTC) is an industry-leading manufacturer and seller of computer processors and related hardware products. As of May 17, Intel Corporation (NASDAQ:INTC) has a forward yield of 3.39%, boasts over 8 years of dividend growth with a 5-year growth rate of 6.25%, and has a forward price-to-earnings ratio of 12.31.

This April, Intel Corporation (NASDAQ:INTC) reported market-beating earnings for the fiscal first quarter of 2022. The company reported earnings per share of $1.98 and beat estimates by $1.26. Intel Corporation (NASDAQ:INTC) generated revenues of $18.35 billion and outperformed market consensus by $29.36 million. Moreover, the company reaffirmed its $76 billion revenue guidance for the fiscal year 2022 and raised its EPS view by $0.10.

On April 29, Northland analyst Gus Richard commented on Intel Corporation’s (NASDAQ:INTC) earnings and told investors that while he believes the company will beat market estimates in the second quarter of 2022, he is wary of macro issues that might impact the company’s full-year guidance. Nevertheless, Richard sees upside potential in the stock and maintained an Outperform rating with a $62 price target on its shares.

By the end of the fourth quarter of 2021, 72 hedge funds held stakes in Intel Corporation (NASDAQ:INTC) which amounted to $5.50 billion. This is compared to 66 positions in the third quarter of 2021, with stakes worth $6.47 billion.

As of the end of this March, Baupost Group is the most prominent shareholder in Intel Corporation (NASDAQ:INTC) having stakes of over $822.32 million in the company.

O’Keefe Stevens Advisory Inc., an asset management firm, published its first-quarter 2021 investor letter in which it mentioned Intel Corporation (NASDAQ:INTC):

“Intel announced they are removing stock-based compensation from non-GAAP earnings in 2022 to report results aligning with semiconductor peers. This may seem like a reasonable thing to do as comparability between peers becomes easier. On the other hand, what exactly is the point of adjusted earnings? It is not to conform to some industry norm or because the management teams need to make performance metrics. The point of adjusting earnings is to present results in a light that more closely reflects the actual underlying performance of the business. That is, backing out expenses that might be one-time in nature, such as legal or fire expenses. First off, share-based compensation is an actual expense. Decreasing my ownership stake in a company without receiving any compensation is not free. If a company paid its employees in all stock, would they add back the entire SBC? What a margin profile that would be. Second, should a company be worried about reporting results similar to other companies? Every company is unique. Management should not waste time determining what expenses should be excluded. Run the business, don’t worry about adjusting the numbers.”

10. Goldman Sachs Group, Inc. (NYSE:GS)

Number of Hedge Fund Holders: 75

Up next we have Goldman Sachs Group, Inc. (NYSE:GS), a leading global multinational investment bank and financial services company. On April 14, Goldman Sachs Group, Inc. (NYSE:GS) posted outperforming earnings for the fiscal first quarter of 2022. The banking giant reported revenues of $12.93 billion and beat estimates by $1.17 billion. Moreover, the company’s earnings per share came in at a hefty $10.76, exceeding expectations by $1.78. As the Fed hikes interest rates, the financial services sector is becoming lucrative for investors and is presenting compelling opportunities, such as Goldman Sachs Group, Inc. (NYSE:GS).

Right after announcing its earnings, Goldman Sachs Group, Inc. (NYSE:GS) reported that it is well-positioned to achieve its milestones in 2022, noting a robust investment banking backlog, no material decline in credit metrics to date, and also expectations for consistent insider buying in the second quarter of 2022. The stock appears to be trading at a discount, as of May 17, Goldman Sachs Group, Inc. (NYSE:GS) has a forward PE ratio of 8.01 and offers a handsome dividend yield of 2.64%, which makes it one of the best-value dividend-paying DOW stocks to buy according to hedge funds.

Goldman Sachs Group, Inc. (NYSE:GS) is keeping up with the crypto-trends in the financial services industry. This May, the company participated in a $70 million funding round of Elwood Technologies, an emerging cryptocurrency trading platform founded by billionaire Alan Howard.

On May 3, Oppenheimer analyst Chris Kotowski slashed his price target on Goldman Sachs Group, Inc. (NYSE:GS) to $519 from $546 but reiterated an Outperform rating on the shares. Kotowski told investors that surging interest rates and loan growth are a useful combination for financial institutes and would help banks maintain their dividends, making bank stocks a profitable investment option.

At the close of Q4 2021, 75 hedge funds were long Goldman Sachs Group, Inc. (NYSE:GS), up from 74 hedge funds in the preceding quarter. The hedge fund sentiment for the stock is positive.

As of March 31, 2022, Eagle Capital Management is the dominating stakeholder in Goldman Sachs Group, Inc. (NYSE:GS) having stakes worth $1.12 billion. The investment covers 3.8% of the firm’s investment portfolio.

Ariel Investments mentioned Goldman Sachs Group, Inc. (NYSE:GS) in its “Ariel Focus Fund” fourth-quarter 2021 investor letter:

“Rising interest rates, after a surprisingly long period of low absolute rates and negative “real” rates, will create a headwind. While there has been much debate about the cause of these low rates, we believe the most important factor has been the $120 billion in monthly federal reserve open market bond purchases and the accumulation of an $8 trillion balance sheet. The former will end, and the latter will shrink. It is not just the Fed that has aggressively purchased bonds, bidding up prices and lowering yields. Bond traders and hedge fund managers have added to positions, confident that being on the same side as the Fed was the wise place to be. Now as the Fed is about to become a seller of bonds rather than a buyer, Wall Street’s “smart money” is likely to follow suit. Against this backdrop, fixed income securities and bond substitutes such as high dividend paying utilities and absolute return hedge funds are substantially overpriced and are not likely to produce attractive returns going forward.

This expectation of a reversion to the mean for interest rates helped 2021 performance, though not as much as we had hoped. The yield on the U.S. 10-year Treasury did indeed increase from +0.92% at the beginning of the year to +1.52% at year-end. An underreported story was the poor performance of bonds last year. The Barclays Aggregate Index declined -1.67% for the year ending December compared to a return of +28.71% for equities as measured by the S&P 500. Interest rates have continued to climb in 2022 with the 10-year Treasury at +1.79% as we go to print. This move higher in rates has contributed to our good, early start to 2022. The Goldman Sachs Group, Inc. (GS) jumped +47.59% for the year and +1.73% in the quarter.”

9. Merck & Co. Inc. (NYSE:MRK)

Number of Hedge Fund Holders: 80

Merck & Co. Inc. (NYSE:MRK) operates as a global healthcare company through two business segments: Pharmaceutical and Animal Health. Analysts are becoming bullish on the stock and on April 12, Barclays analyst Carter Gould raised his price target on Merck & Co. Inc. (NYSE:MRK) to $97 from $94 and maintained an Overweight rating on the shares. As of May 17, the stock’s trailing twelve-month returns are up 23.53% and the company’s forward PE ratio sits at 12.52, which makes it a high-momentum best-value DOW stock to buy according to hedge funds.

Moreover, on April 23, Dow Jones magazine Barron’s named Merck & Co. Inc. (NYSE:MRK) among the dividend stocks that will help whip inflation. On April 28, the company posted market-beating Q1 2022 earnings in which it exceeded EPS estimates by $0.31. According to Merck & Co. Inc. (NYSE:MRK), the company’s quarterly revenues grew 31.63% year over year and came in at $15.90 billion, outperforming market consensus by $1.25 billion. The company registered an EPS of $2.14.

At the close of the fourth quarter of 2021, 80 hedge funds held stakes in Merck & Co. Inc. (NYSE:MRK), up from 77 positions in the third quarter of 2021. The total value of these stakes amounted to $3.78 billion.

Fisher Asset Management was the top stakeholder in Merck & Co. Inc. (NYSE:MRK) at the end of this March. The fund’s stakes in the company came in at $970.8 million which represents 0.57% of its investment portfolio.

ClearBridge Investments recently published its “Sustainability Leaders Strategy” fourth-quarter 2021 investor letter in which it mentioned Merck & Co. Inc. (NYSE:MRK). Here is what the firm said:

“Other pharma companies are providing solutions as well. Merck’s antiviral pill molnupiravir is less effective than Pfizer’s, but it will be a helpful alternative for patients who cannot take Pfizer’s due to drug-drug interactions. Merck is also helping to manufacture Johnson & Johnson’s COVID-19 vaccine, which has less stringent storage requirements than the mRNA vaccines do.”

8. Johnson & Johnson (NYSE:JNJ)

Number of Hedge Fund Holders: 83

Another healthcare stock that made it to the list of best DOW stocks to buy according to hedge funds is dividend king Johnson & Johnson (NYSE:JNJ), offering a potent forward yield of 2.54% as of May 17, a compelling PE ratio of 17.36, and twelve-month share-price gains of 4.77%. At the end of the fourth quarter of 2021, 83 hedge funds were long Johnson & Johnson (NYSE:JNJ) with stakes worth $7.38 billion. This is compared to 88 positions in the previous quarter with stakes of $6.87 billion. Hedge funds are raising their stakes in the company, and the stock is appreciating in value, making Johnson & Johnson (NYSE:JNJ) one of the best DOW stocks to buy according to hedge funds.

On April 19, Johnson & Johnson (NYSE:JNJ) posted fiscal first-quarter earnings for 2022. The company reported earnings per share of $2.67 and exceeded EPS estimates by $0.10. The company generated $23.43 billion in quarterly revenues, up 4.95% year over year from $22.32 billion. Shortly after releasing market-beating earnings, the company announced that its board of directors have authorized a 6.6% increase in the company’s prior quarterly dividend of $1.06 per share, bringing the dividend to $1.13 per share. The common stock cash dividend is payable on June 7 to investors of record on May 24.

Johnson & Johnson (NYSE:JNJ) is being watched by finance experts. After the company’s earnings release, Citi analyst Joanne Wuensch raised her price target on Johnson & Johnson (NYSE:JNJ) to $210 from $203 and maintained a Buy rating on the shares.

Arrowstreet Capital is the dominating shareholder in Johnson & Johnson (NYSE:JNJ) as of March 31, 2022. The fund’s stakes in the company were valued at $1.17 billion.

Just like Apple Inc. (NASDAQ:AAPL), Visa Inc. (NYSE:V), and Microsoft Corporation (NASDAQ:MSFT), hedge funds are bullish on Johnson & Johnson (NYSE:JNJ).

7. UnitedHealth Group Inc. (NYSE:UNH)

Number of Hedge Fund Holders: 96

UnitedHealth Group Incorporated (NYSE:DE) operates as a diversified health care company in the United States through four business segments: UnitedHealthcare, Optum Health, Optum Insight, and Optum Rx. This April, the company posted strong earnings for the fiscal first quarter of 2022. The company registered an EPS of $5.49, exceeding market estimates by $0.14. The company’s quarterly revenues totaled $80.15 billion, up 14.18% year over year, and outperformed market estimates by $1.38 billion.

UnitedHealth Group Incorporated (NYSE:DE) is becoming a popular stock among the analyst community. On April 18, Deutsche Bank analyst George Hill raised his price target on UnitedHealth Group Incorporated (NYSE:DE) to $549 from $482 and reiterated a Buy rating on the shares. Moreover, as of May 17, the stock has surged 20.40% over the past twelve months. UnitedHealth Group Incorporated (NYSE:DE) has recorded solid growth in its segments and is exhibiting bullish trends, which make it rank among the best DOW stock to buy according to hedge funds.

By the end of the fourth quarter of 2021, 96 hedge funds held positions in UnitedHealth Group Incorporated (NYSE:DE). The stakes of these funds totaled $13.66 billion, up from $11.70 billion in the prior quarter with 95 positions. The hedge fund sentiment for the stock is positive.

As of the end of this March, Eagle Capital Management is the leading stakeholder in UnitedHealth Group Incorporated (NYSE:DE) having stakes worth $1.48 billion.

Wedgewood Partners, an investment management firm, published its first-quarter 2022 investor letter in which it shared its insights on UnitedHealth Group Incorporated (NYSE:DE). Here is what they said:

“UnitedHealth Group contributed to performance during the quarter as the Company’s longterm, mid-teens earnings growth algorithm remained intact. Further, as political wrangling in the U.S. continues unabated, we suspect investors have become more confident that little will be done on the legislative front to derail the status quo between private health insurance and Medicare/Medicaid. COVID trends continue to ebb throughout the healthcare system; however, there is a sustainable benefit to the cost structure of U.S. healthcare – particularly related to virtual care. Virtual care is not only becoming more acceptable but is now preferred by many patients and care providers which should lead to less overhead (e.g., office space) that can be reinvested in better patient outcomes. Last, the Centers for Medicare and Medicaid Services proposed a nearly 8% hike in revenue for Medicare Advantage 2023, which should allow for ample flexibility in benefit enhancement and continued incentive to grow this franchise.”

6. JPMorgan Chase & Co. (NYSE:JPM)

Number of Hedge Fund Holders: 107

JPMorgan Chase & Co. (NYSE:JPM) is a global leader in the financial services space and is also the largest bank in America boasting $2.87 trillion in assets as of January 2022. The stock is a popular pick among elite hedge funds and according to Insider Monkey’s database, 107 hedge funds were long JPMorgan Chase & Co. (NYSE:JPM) at the close of Q4 2021. The total stakes of these funds were valued at $6.58 billion, up from $5.63 billion in Q3 2021 with 101 positions. The hedge fund sentiment for the stock is positive and it is the sixth-best DOW stock to buy according to hedge funds.

JPMorgan Chase & Co. (NYSE:JPM) is making hefty investments in banking technology. On May 10, the company launched its data platform, “Fusion by J.P. Morgan” which provides end-to-end data management and reporting solutions to institutional investors. This platform will allow investors to streamline data from multiple sources and also offers scalability benefits and cost-effectiveness for financial analysis and data management.

This April, JPMorgan Chase & Co. (NYSE:JPM) released earnings for the fiscal first quarter of 2022 in which it exceeded revenue estimates by $318.51 million. The banking giant reported earnings per share of $2.63 and generated revenues of $30.72 billion. JPMorgan Chase & Co. (NYSE:JPM) appears to be trading at a discount and also comes with a strong dividend history. As of May 17, the stock has a forward PE ratio of 10.65 and a dividend yield of 3.38%. The company has consistently grown its dividends for over 9 years and recorded a 5-year dividend growth rate of 14.99%, with an annual payout ratio of 29.35%.

Fisher Asset Management is the most prominent shareholder in JPMorgan Chase & Co. (NYSE:JPM) as of March 31, 2022. The fund’s stakes were valued at $1.05 billion which covers 0.62% of its investment portfolio.

Hedge funds are stacking up JPMorgan Chase & Co. (NYSE:JPM). Other DOW stocks being watched by hedge funds include Apple Inc. (NASDAQ:AAPL), Visa Inc. (NYSE:V), and Microsoft Corporation (NASDAQ:MSFT).

ClearBridge Investments mentioned JPMorgan Chase & Co. (NYSE:JPM) in its “Large Cap Value Strategy” fourth-quarter 2021 investor letter. Here is what the firm said:

“Our energy and financials holdings kept pace in the 2021 rally. In financials, JPMorgan benefited from strong economic growth, a rise in Treasury yields, and a benign credit environment.”

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