Dow stocks are driving the market lower today, as investors respond unfavorably to the latest quarterly earnings reports from blue-chip tech stock Cisco Systems (CSCO) and mega-retailer Walmart (WMT). Already, the 30-stock Dow Jones Industrial Average ($DOWI) has been lagging its broader market counterparts in 2023, with its year-to-date gain of 5.3% stacking up against a return of 17% for the S&P 500 Index ($SPX), and a rally of 34% for the Nasdaq Composite ($NASX).
Despite the group's relatively lackluster performance, most Wall Street analysts remain big fans of the Dow 30 - with just a few notable exceptions. With this in mind, here's a look at two of those rare Dow stocks that analysts don't recommend buying at current levels.
3M Company
We start our list with 3M Company (MMM), an industrial conglomerate with interests in diverse fields, including worker safety, healthcare, and consumer goods. Founded in 1902, the company produces a wide range of products, including abrasives, adhesives, sealants, coatings, tapes, filters, films, and personal protective equipment. Its market cap currently stands at $53.47 billion.
In 2023, 3M stock is down more than 15% so far, drastically underperforming the broader market.
The stock's decline has now pushed 3M's dividend yield north of 6%, which is well above the sector median of 1.56%. That said, its payout ratio is hovering around 66%, which is also sharply higher than the sector median of 27%. There are now significant debates about whether the dividend king, with over 50 years of consecutive dividend growth, can continue to support its generous shareholder returns.
In particular, costly product liability lawsuits continue to plague the company. Already this year, 3M has paid out billions of dollars in settlements, and there's uncertainty over the ultimate cost of pending PFAS litigation.
In Q3, 3M reported revenues of $8 billion, down 3% from the year-ago period. EPS of $2.68 beat the consensus estimate of $2.34, continuing a recent trend of bottom-line beats for MMM.
On average, analysts deem 3M stock a “Hold.” Out of 14 analysts, only one has a “Strong Buy” rating, 11 have a “Hold” rating, and two have a “Strong Sell” rating. The mean target price of $18.75 represents upside potential of 14.1% from current levels.
Intel
Intel (INTC) is one of the world's largest and highest-valued semiconductor chip manufacturers by revenue, and is the inventor of the x86 series of microprocessors found in most personal computers (PCs). It also manufactures chipsets, motherboards, flash memory, network and communication products, and software.
Currently commanding a market cap of $171.2 billion and offering a dividend yield of 1.82%, Intel stock is beating the market with a 62.7% YTD gain.
Given the massive growth story in artificial intelligence (AI), driven by semiconductors, it might seem surprising that analysts aren't all-in on Intel.
However, Intel isn't exactly reporting incredible growth. In its latest earnings report, EPS rose 11% to $0.41, but revenues were off 8% from the previous year to $14.2 billion. Key segments like the Client Computing Group (down 3% YoY), Data Center and AI (down 10% YoY), and Network and Edge (down 32% YoY) all contributed to the year-over-year decline in revenues.
Further, the company's huge debt pile is a point of concern. Standing at a massive $46.6 billion at the end of September, that's up by 23.6% from the beginning of the year. Meanwhile, adjusted free cash flow was $943 million, while net cash from operating activities fell for the nine months that ended in September.
Analysts have a “Hold” rating on Intel stock, and its mean target price of $36.78 indicates expected downside of more than 12% from current levels.
Out of 31 analysts covering the stock, only three have a “Strong Buy” rating, three have a “Moderate Buy” rating, 20 have a “Hold” rating, one has a “Moderate Sell” rating, and four have a “Strong Sell” rating.
