We recently identified the best dow stocks according to hedge funds. Even though Merck & Co., Inc. (NYSE:MRK) ranks on our list, it’s not the best pick among hedge funds. Moreover, the company is one of the top two Dow stocks in the healthcare sector but it is not the best. You can check the other healthcare stock on 8 Best Dow Stocks to Buy According to Hedge Funds.
On May 17, the Dow Jones Industrial Average (^DJI) closed out at record highs, crossing the 40,000 milestone for the first time ever. However, this was a little shortlived as the index is down nearly 2.35% since that day, as of May 23. While the index seems to be underperforming the S&P 500 and NASDAQ, it doesn’t fully cover the market conditions like the latter two. Nevertheless, the S&P 500 and NASDAQ’s performance is mostly dominated by mega-cap tech stocks, especially NVIDIA Corporation (NASDAQ:NVDA), which isn’t a part of the Dow Jones index.
Dow Bucks Trend, Falls Despite NVIDIA’s Upbeat News
NVIDIA Corporation (NASDAQ:NVDA) reported its first-quarter 2025 earnings on May 22. Despite record numbers, the market failed to rally along with the company. This includes the Dow Jones index as all 30 of its components ended the day in red on May 23, including some of the best Dow stocks that are direct AI beneficiaries such as Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT).
In its Q1 2025, NVIDIA Corporation (NASDAQ:NVDA) generated a revenue of $26.04 billion, which was up over 262% year-over-year and surprised the consensus estimates by $1.45 billion. The company reported earnings per share (EPS) of $6.12, an over 460% increase year-over-year. Moreover, NVIDIA Corporation (NASDAQ:NVDA) announced a 10 for 1 split, which will take effect on June 7. For the second quarter, NVIDIA Corporation (NASDAQ:NVDA) expects a revenue of $28.0 billion. The company predicts that the automotive sector will emerge as the leading enterprise vertical within its Data Center division in the current year. At its Q1 2025 earnings call, the company’s CFO, Colette Kress said:
“Leading LLM companies such as OpenAI, Adept, Anthropic, Character.AI, Cohere, Databricks, DeepMind, Meta, Mistral, xAI, and many others are building on NVIDIA AI in the cloud. Enterprises drove strong sequential growth in Data Center this quarter. We supported Tesla’s expansion of their training AI cluster to 35,000 H100 GPUs. Their use of NVIDIA AI infrastructure paved the way for the breakthrough performance of FSD Version 12, their latest autonomous driving software based on Vision. Video Transformers, while consuming significantly more computing, are enabling dramatically better autonomous driving capabilities and propelling significant growth for NVIDIA AI infrastructure across the automotive industry. We expect automotive to be our largest enterprise vertical within Data Center this year, driving a multibillion revenue opportunity across on-prem and cloud consumption.”
After reporting stellar earnings, NVIDIA Corporation’s (NASDAQ:NVDA) share price crossed the $1000 mark for the first time and was 9.3% higher in a day, at the May 3 market close. Nevertheless, the company failed to rally the market with it as the S&P 500 was down almost 0.75% during the same period, the NASDAQ-composite recorded a decline of 0.4% and the Dow Jones index experienced its worst day in almost 14 months declining by over 1.5%.
Jim Cramer: Celebrating the 40K Milestone
Even though the Dow Jones index is underperforming other indices in 2024, CNBC Mad Money host, Jim Cramer still believes in celebrating its 40,000 points milestone. On May 20, he urged the investors to appreciate the market’s progress despite past downturns. Cramer emphasized that while the Dow does not fully represent the market like the S&P 500, it reflects a team effort across various sectors, which should have been demolished by the challenges they faced, such as the Federal Reserve’s rate hikes, inflation, and supply chain issues during the Covid-19 pandemic, yet they thrived. He acknowledged the potential for market declines but stressed the importance of recognizing the achievements of these stocks and companies over the years.
Cramer mentioned that he started as a summer associate in 1983 at Goldman Sachs when the Dow was just over 1000 points, the market was full of bears in multiple sectors but the stock market “left them behind.” He added that the index going from 1000 to 40,000 shows the strength of these companies and that they “will make you money.”
In light of these comments, some of the best Dow stocks include Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), and Visa Inc. (NYSE:V). You can also take a look at the 15 Best S&P 500 Dividend Stocks To Buy Now.
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Our Methodology
For this article, out of the 30 components of the Dow Jones index, we narrowed down our list to 8 stocks that were most widely held by institutional investors as of the first quarter of 2024. The hedge fund data was taken from Insider Monkey’s database of 919 elite hedge funds. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
Merck & Co., Inc. (NYSE:MRK)
Number of Hedge Fund Holders: 95
Merck & Co., Inc. (NYSE:MRK) is a New Jersey-based healthcare company that operates through Pharmaceutical and Animal Health segments. In Q1, 95 hedge funds had investments in Merck & Co., Inc. (NYSE:MRK), with positions worth $8.11 billion. With 13.87 million shares worth $1.83 billion, Fisher Asset Management is the most dominant shareholder in the company, as of March 31.
On April 25, Merck & Co., Inc. (NYSE:MRK) reported Q1 earnings. The non-GAAP EPS was $2.07, which topped the estimates by $0.15. The revenue grew 9% year-over-year to $15.8 billion and beat the estimates by $600 million. For its full-year 2024 financial outlook, the company raised and narrowed its expected sales range to $63.1 billion and $64.3 billion, compared to the previous $62.7 to $64.2 billion range. Additionally, it expects full-year non-GAAP EPS to be between $8.53 and $8.65, compared to the prior $8.44 to $8.59 guidance.
Merck & Co., Inc. (NYSE:MRK) joins our list of the best Dow stocks to buy according to hedge funds, along with Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), and Visa Inc. (NYSE:V).
Baron Health Care Fund stated the following regarding Merck & Co., Inc. (NYSE:MRK) in its first quarter 2024 investor letter:
“Global pharmaceutical company Merck & Co., Inc. (NYSE:MRK), Inc. contributed on the continued growth of Keytruda, the company’s key asset and the leading immuno-oncology agent used to treat a variety of cancers. The FDA’s late March approval of pulmonary arterial hypertension drug sotatercept, also drove share gains. We retain conviction as Merck has started to transition from prioritizing its Keytruda franchise to building a more diversified business, with a focus on the Gardasil vaccine, pneumococcal vaccine development, and cardiovascular drug development, well in advance of the scheduled expiration of patent protection/exclusivity rights.”
Merck & Co., Inc. (NYSE:MRK) is number eight on our list of the best Dow stocks. Click to see the other 7 Best Dow Stocks to Buy Now.
If you are looking for an AI stock that is as promising as Microsoft but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure. None. This article is originally published at Insider Monkey.