The Dow Jones Industrial Average index, commonly called as the Dow or DJIA, is a price-weighted stock market index consisting of the top 30 American blue-chip companies. The index covers all industry sectors except transportation and utilities. The Dow uses a divisor-based methodology to calculate the index value based on the prices of its constituent stocks. Microsoft Corp. (MSFT), Apple Inc. (AAPL), Johnson & Johnson (JNJ), JPMorgan Chase & Co. (JPM) and Exxon Mobil Corp. (XOM) are the most valued companies in the Dow Jones index based on the market cap value as of mid-December 2018.
Based on the historical data, the DJIA has generated an average annual return of around 7.75 percent from 1921 to 2017 without adjusting for inflation or dividends. However, during the year 2018, the annual return from DJIA was negative and stood at around (-4.96) percent between January 02, 2018 and December 17, 2018. The index is hovering in the range of 23,593 as of mid-December. During the previous year (2017), the index posted a healthy annual gain of around 25 percent. Based on the various predictions, the DJIA index is expected to trade in the range of 22,600 to 23,900 during the next year.
The following were the top performing stocks of the Dow Jones index during the year 2018. The list is presented in the order of year-to-date (YTD) performance based on the opening stock price as of January 02, 2018 and closing price as of December 17, 2018.
1. Merck & Co., Inc. (MRK)
Market Cap: $195.63 billion
Price Change: +$19.01
Performance against the DJIA: +34%
2. Microsoft Corp. (MSFT)
Market Cap: $789.94 billion
Price Change: +$16.94
Performance against the DJIA: +19.75%
3. Pfizer Inc. (PFE)
Market Cap: $250.04 billion
Price Change: +$6.67
Performance against the DJIA: +18.03%
4. UnitedHealth Group Inc. (UNH)
Market Cap: $248.27 billion
Price Change: +$36.91
Performance against the DJIA: +16.7%
5. Cisco Systems, Inc. (CSCO)
Market Cap: $198.72 billion
Price Change: CSCO gained $5.34
Performance against the DJIA: +13.75%
Merck & Co., Inc. (MRK)
The Kenilworth, NJ-based leading drug maker Merck & Co., Inc. (MRK) emerged as the best performing stock in the Dow Jones index for the year 2018 with 34 percent annual returns. The stock started gaining momentum April onwards after a choppy first quarter. In June, company’s most successful cancer immunothereapy (IO) drug Keytruda secured additional FDA approval for treating two new indications. Its other cancer products, Lynparza and Lenvima, too contributed with strong sales all throughout the year. Merck’s vaccine portfolio also generated healthy sales with a 13 percent increase in Q3, and the HPV-related cancer vaccine Gardasil was launched in China allowing Merck to expand to new markets. Merck’s diabetes franchise, Januvia and Janumet, also supported its financials with stable sales during the year. The company successfully surpassed the street estimates for both earnings as well as revenues for second and third quarter which helped its stock price move upward consistently.
Microsoft Corp. (MSFT)
After a rocky ride during the first quarter of 2018, the stock of Redmond, WA-based technology major Microsoft Corp. (MSFT) started its upward move April after the company beat estimates on earnings and revenue and provided better-than-expected guidance for the quarters to come. The company managed to consistently beat the street expectations for next two quarterly results announced in July and October which helped the stock maintain its momentum upwards. The rising revenues were contributed by strong growth of Microsoft's Commercial Cloud, which includes Azure platform. The 19 percent jump in revenue from Microsoft’s productivity and business processes segment, which comprises of Microsoft's Office, Dynamics, and LinkedIn, also helped its financials during Q3. Backed by strong sales growth from low single digit during fiscal 2017 to nearly 20 percent at the start of fiscal 2019, the stock price touched 52-week high in early October. The technology leader remains a strong buy with a long term view.
Pfizer, Inc. (PFE)
Hit with stagnant revenues over the past couple of years, 2018 was no different for the leading drugmaker Pfizer, Inc. (PFE). With a $12 billion share buyback program, no major merger or acquisition announcements, and a healthy dividend payout indicates the company is distributing cash to its shareholders and not exploring new ventures. However, a jump of 31 percent in sale of anti-inflammation tablet Xeljanz, and rise of 24 percent in sales of cancer drug Ibrance during the first three quarters of 2018 has helped company maintain steady revenues. The stock price got a boost from a recent label expansion of Xeljanz which allows its use for treating ulcerative colitis in the U.S. and EU, and from the launch of Ibrance in the new markets of Europe and Japan. Label expansion for Xtandi for treating multiple types of prostate cancers has the potential to make it a high revenue drug for Pfizer in coming times. Recent FDA approval for breast cancer drug Talzenna is also expected to add to earnings for Pfizer.
These positive developments have helped the leading drug-maker secure the third spot with annual return of around 18 percent.
UnitedHealth Group, Inc. (UNH)
The Minnetonka, MN-based insurance and health-services giant UnitedHealth Group, Inc. (UNH) has maintained a consistent record for announcing better-than-expected revenue and earnings for first three quarters of 2018. The consistent financial results, clubbed with improved earnings outlook for full-year 2018, have helped the stock soar to generate 17 percent returns during 2018. Revenues were supported by increase in sales of the company's costliest plans that cover serious health conditions. The financials got a boost by growth in its Optum business segment which provides pharmacy benefits management and technology services to health insurers and medical providers. During a late November investor conference, the company announced hitting the milestone of covering up to “50 million people under its individual health-record product, disclosed a deal to buy a medical group in Seattle and touted its partnership with Minneapolis-based startup Bind Benefits Inc.” The company also benefited from the cut in corporate tax rate from 35 percent to 21 percent, and from its technology-linked investments to achieve reduction in customer costs.
Cisco Systems, Inc. (CSCO)
Though Cisco Systems, Inc. (CSCO) stands fifth in the list of best performing Dow Jones stocks with annual return of around 14 percent, it has been a rocky ride for the San Jose, CA-based communication equipment-maker. During the first half of the year that generated around 12 percent YTD returns, the stock built gains based on better-than-expected earnings from the first two quarters, the positive sentiment on technology sector companies and the Tax Cuts and Jobs Act of 2017. The company continues to transform its business model, like plans to move from single sale model to one that generates more recurring revenue streams. It is diversifying its offerings to cater to the evolving needs of the cloud services and networking industry, while maintaining the router and switching hardware that have been the revenue earners.
Price Performance of Top DJIA Index Gainers
Disclaimer: At the time of writing, the author holds no positions in any of the stocks mentioned in the article.