The Dow Jones Industrial Average (DJINDICES: ^DJI) generally does not include growth stocks. Instead, it typically includes the largest stocks in the market, paying less attention to the potential for outsized growth. Names in this group tend to be mature and relatively slow-moving companies.
Nevertheless, a number of consumer sector stocks are included in the index while still having the potential for significant sales growth. Therefore, growth stock investors should not automatically write off Dow 30 stocks. They may want to express interest in the following two companies:
Amazon (NASDAQ: AMZN) is best known for his pioneering work in the e-commerce and cloud computing industries. The company’s strategic insight and ability to seize opportunities helped it grow from an online bookseller to a retail and technology powerhouse.
However, you could argue that investors should know this because of its ability to deliver significant growth despite a massive $2.4 trillion market cap. Companies of that size typically struggle with high growth rates, as a gain of just 10% in Amazon implies a $240 billion increase in market cap, more than the entire market cap of most companies.
Still, that growth may make more sense if you look at the company as a collection of businesses. The largest and oldest business, online sales, is a low-margin business, and its financials imply the possibility that it is not profitable.
Instead, investors should look at the companies the sales site supports. Among them are the subscription business, third-party seller service and digital advertising. The percentage growth of each of these companies is currently in the double digits.
So when its $450 billion revenue rose 11% year over year in the first nine months of 2024, it wasn’t due to the online sales portion of the business, which increased revenue by just 5%.
Its cloud computing business, Amazon Web Services (AWS), is also seeing double-digit revenue growth. And AWS accounted for $29 billion of Amazon’s $39 billion in operating revenue in the first nine months of the year, making it a huge profit engine and growth catalyst for the stock.
Amid surging sales, the stock is up 55% in the past year. Despite these increases, the price-to-earnings ratio (P/E) stands at 49. That’s above S&P500 average of 31, but Amazon’s earnings multiple is just above a multi-year low.
So while Amazon’s size makes high percentage growth more difficult, it shows how it can still beat the market indexes. This power should serve the stock well in the coming years.
My choice Verizon (NYSE: VZ) could surprise some investors. Competition from its two main rivals, AT&T And T-Mobilehas put pressure on the company over the years. Moreover, the race to keep up has left Verizon with a total debt of $151 billion, which it has struggled to reduce.
While the annual payout of $2.71 per share provides a dividend yield of 6.4%, the $11 billion annual cost of the payout is likely to hinder debt repayment. But given 18 consecutive years of annual payout increases, the company may be reluctant to end this streak, even if AT&T ended 35 years of annual dividend increases in 2022.
Despite this challenge, Verizon appears to be in a win-win situation. First, despite the charges, the stock appears to have stopped falling. It rose 12% last year, not including the dividend yield.
This has happened as Verizon’s wireless and broadband businesses benefit from strong subscriber growth, especially in the first three quarters of the year. And it has announced plans to buy Frontier Communications parentgiving it control over an extensive fiber optic network that will allow it to strengthen its communications offering. Verizon is also regaining control of the FiOS business, which it sold to Frontier a decade ago.
Furthermore, it is possible that the dividend termination could actually occur increase returns in the long term. Investors may recall that T-Mobile is the top-yielding stock in this space, and it didn’t pay a dividend until last year.
As mentioned above, the dividend claimed $11 billion of Verizon’s $19 billion of free cash flow over the trailing twelve months. If the company could use some or all of that dividend for debt relief, the reduction in the cost of servicing its debt could boost its profitability and, by extension, its stock price, boosting confidence in its stock.
Finally, the price-to-earnings ratio has increased to 18. That has increased in recent years, but is close to AT&T’s earnings multiple and significantly lower than T-Mobile’s. Assuming it can maintain the current rate of subscriber growth, the stock should continue to rise regardless of Verizon’s future dividend policy.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.
These two Dow stocks will rise in 2025 and beyond, originally published by The Motley Fool
