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The Dow Jones Industrial Average ($DOWI), comprised of 30 powerhouse companies popularly known as blue-chip stocks, kicked off the year on a positive note - and is still clinging to a slim 2024 gain, despite a tough month of April. However, popular names like Apple Inc. (AAPL) and Intel Corporation (INTC) have been among the weakest performers.
Nevertheless, analysts at investment giant Morgan Stanley (MS) suggest it’s time to buy the dip on these Dow stocks, with the prospect of artificial intelligence (AI)-driven breakthroughs set to revolutionize both companies’ trajectories.
While Apple’s AI software features are expected to play a key role in bolstering its growth trajectory, Morgan Stanley analysts say the growing demand for Intel’s AI chips and the expected resolution of supply issues by the latter half of 2024 could lead to a significant uptick in Intel’s sales.
Dow Stock #1: Apple Inc.
California-based powerhouse Apple Inc. (AAPL) is famed for its iconic product, the iPhone. Boasting a massive market cap of over $2.6 trillion, the company’s product portfolio includes various cutting-edge technology products, such as smartphones, personal computers, tablets, wearables, and accessories.
Shares of Apple have declined 9.9% on a YTD basis, lagging behind the Dow’s gain of 0.9% during the same time frame.
The company remains steadfast in its commitment to delivering value to its shareholders – returning roughly $27 billion during Q1. Its annualized dividend of $0.96 translates to a 0.55% yield.
In terms of valuation, the stock is trading at 25.98 times forward earnings and 6.82 times sales - higher than the technology hardware, storage, and peripherals industry median, but in line with peers like Alphabet (GOOG).
Despite grappling with regulatory scrutiny, alongside heightened restrictions in China affecting the sales of its flagship product, the iPhone, which led to a significant downturn in its shares at the beginning of 2024, Apple's Q1 performance showcased remarkable resilience.
After reporting four consecutive quarters of revenue declines, Apple reported Q1 total net sales of $119.6 billion on Feb. 1, which jumped 2.1% year over year and marginally surpassed Wall Street’s projection. EPS of $2.18 rose 16% annually, topping analyst estimates by 4.3%.
While the company refrained from offering guidance for its Q2 and fiscal 2024 performance, analysts tracking Apple expect the company’s profit to reach $6.54 per share in fiscal 2024, up 6.7% year over year, and grow another 8.6% to $7.10 in fiscal 2025.
The company is expected to release its Q2 earnings results this Thursday, May 2, after the market closes.
Apart from Morgan Stanley’s optimism on the company’s prospects, Apples shares rose nearly 2.5% on Apr. 29, registering its biggest one-day percentage surge in more than two weeks, after an upgrade from Bernstein. The analyst assigned an "outperform" rating to the stock, highlighting the company’s potential for heightened phone replacement sales, supported by advancements in generative AI technology.
Apple stock has a consensus “Moderate Buy” rating. Out of the 28 analysts offering recommendations, 16 recommend a “Strong Buy,” three suggest “Moderate Buy,” eight advise “Hold,” and the remaining one gives a “Strong Sell” rating.
The average analyst price target of $204.88, indicates a potential upside of 18.3% from the current price levels. However, the Street-high price target of $250, reiterated by Wedbush in March, suggests a notable 44.4% upside potential.
Dow Stock #2: Intel Corporation
With a market cap of over $132.6 billion, Santa Clara-based chip giant Intel Corporation (INTC) is a global leader in designing, manufacturing, and selling computing, and related products and services. The company offers a diverse portfolio of products, including central processing units (CPUs), system-on-chips (SoCs), graphics processing units (GPUs), and semiconductor products.
Intel stock has declined 38.8% on a YTD basis, significantly underperforming the Dow during the same time frame.
For fiscal Q2, the company declared a dividend of $0.125 per share payable to its shareholders on Jun 1. Intel offers an annualized dividend of $0.50, resulting in a 1.59% dividend yield.
In terms of valuation, the stock is trading at 2.49 times sales, lower than its own five-year average and its industry peer Taiwan Semiconductor (TSM).
On April 25, Intel’s shares jumped roughly 1.8% after the company reported its Q1 earnings, which exceeded Wall Street projections. Intel’s loss per share narrowed to $0.09, while adjusted earnings were 18 cents per share. Its net revenue improved 8.5% year over year to $12.7 billion, slightly missing the analyst projections.
Intel’s CEO, Pat Gelsinger, expressed confidence in plans to regain process leadership next year and drive sequential growth throughout the year, particularly by accelerating AI solutions and maintaining focus on execution and shareholder value creation.
For fiscal Q2, management expects revenue to range between $12.5 billion and $13.5 billion. Its non-GAAP EPS and non-GAAP gross margin are projected to come in at $0.10 and 43.5%, respectively. Meanwhile, analysts tracking Intel expect the company’s profit to surge 57.9% to $0.60 per share in fiscal 2024 and grow another 118.3% to $1.31 in fiscal 2025.
While Morgan Stanley is optimistic, Intel stock has a consensus “Hold” rating. Out of the 34 analysts covering the stock, three analysts suggest a “Strong Buy,” two advise a “Moderate Buy,” 25 analysts recommend a “Hold,” and the remaining four give a “Strong Sell” rating.
The average analyst price target of $42.96 indicates a potential upside of 40% from the current price levels. However, the Street-high price target of $68 suggests an ambitious 121.7% upside potential.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
