The three best Dow Jones stocks in the third quarter

Key points

• The Dow Jones rose 8.2% in the third quarter.

• 3M was by far the best performer, up 34% in the quarter.

• IBM and McDonald’s also had strong quarters.

The third quarter turned out to be good for the Dow Jones. These three stocks performed the best.

The Dow Jones Industrial Average finished the third quarter at an all-time high after rising 8.2% in Q3. The Dow Jones outperformed all major indexes in the quarter except the Russell 2000, as investors flocked to the stable, blue-chip stocks that make up the index amid volatility among technology and technology stocks. growth.

Overall, 22 of the 30 Dow Jones stocks had positive returns in the quarter, but the winners did not include shares of Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT), or media giant Disney (NYSE:MSFT). :DIS), which went down.

Below, the three best stocks in the Dow Jones in Q3.

1. 3M rises 34% in Q3

The 3M Company (NYSE:MMM), the industrial stronghold that makes about 60,000 different household products, such as Scotch Tape and Post-It Notes, has struggled mightily in recent years. It has been swept up in controversy after controversy, from defective earplugs to pollution, resulting in billions of dollars in legal judgments.

The stock has faltered for most of the past 10 years, with an average annual return of 1.5%, but things have improved since 3M resolved its legal problems and hired a new CEO, William Brown, on May 1.

Specifically, 3M stock soared about 23% after its surprisingly good second-quarter earnings report, with earnings up 117% year-over-year. Additionally, it raised its guidance for the remainder of fiscal 2024. That helped fuel its 34% gain in Q3. Currently, the stock is up 48% year to date and is the second-best performer in the Dow this year.

3M has always been a great dividend stock, a Dividend King, in fact, with 65 consecutive years of dividend increases. With a solid 2.1% yield and its financials improving, it remains a solid buy for investors. However, it has a high P/E after the Q3 surge, so the price is likely to stabilize in the short term.

2. IBM, up 23% in Q3

IBM (NYSE:IBM) has transitioned from being the leading maker of personal computers to its current leadership in cloud computing and AI consulting, two of the fastest-growing segments in the technology space.

IBM’s share price soared 23% in Q3 and is now up 35% so far this year, making it the fourth-best stock in the Dow Jones this year.

Much of IBM’s gains have come in the last month as it launched several new initiatives, including its acquisition of Accelalpha, an Oracle services provider, and its expanded consulting relationship with Oracle. It was also boosted by a strong second-quarter earnings report, with profits up 14% year-over-year and gross profit margin expanding to 57%.

Even with its strong performance this year, IBM is that rare tech stock that remains relatively cheap, with a P/E of 24. However, the consensus price target among analysts is $202 per share, which would be a drop of about 8%. I’m a bit more optimistic than that, as it still looks attractively valued and has plenty of growth potential. Definitely a hold if you have it in your portfolio or a solid buy if it goes down.

3. McDonald’s, up 22% in Q3

McDonald’s Corp. (NYSE: MCD) had a great third quarter, rising 22% to raise its share price to $304 as of September 30. The fast-food restaurant chain’s stock had been trading below $249 per share in early July, down about 16% so far this year, before soaring over the past three months. McDonald’s stock is now up about 3% so far this year.

McDonald’s stock rose in the days after it released its second-quarter results on July 29, even though revenue and profits were down, year over year, and the results missed estimates.

Investors may have been buying the stock at the time, after some bad economic news caused the market to panic over the possibility of an impending recession. It coincided with McDonald’s reiterating its commitment to the $5 value menu, which may have led investors to view McDonald’s as a good stock to own in tough times. It also spiked after the Fed lowered interest rates on September 17.

On October 3, the company announced that it would launch the Chicken Big Mac on October 10, which could provide a boost in sales for the company.

Overall, I don’t see much near-term upside potential with McDonald’s stock, as the rise was more a function of investors buying down.