We recently compiled a list of the 9 Best Dow Stocks to Buy According to Analysts. In this article, we are going to take a look at where Chevron Corporation (NYSE:CVX) stands against the other Dow stocks.

Since its introduction in 1896, the Dow Jones has undergone significant changes but remains a popular benchmark for measuring the economy and the overall stock market outlook. While the Index has gained 13% year to date, it has lagged the S&P 500, up by 21% over the same period.

The significant underperformance is because the Dow is mostly made up of blue-chip American companies, most of which have come under pressure amid deteriorating macroeconomics. While the Index is mostly made up of financial services companies at 23%, followed by technology at 20%, it has felt the full brunt of  deteriorating economic conditions.

READ ALSO: 8 Worst Performing Tech Stocks in 2024 and 10 Worst Performing Blue Chip Stocks in 2024.

The U.S. economy is reeling from the effects of high interest rates, resulting in a slowdown in the labour market, and the manufacturing sector has significantly affected the Dow holdings. Additionally, the soaring geopolitical tensions in the Middle East have rattled investors’ sentiments, resulting in most of them shunning equities in favor of safe havens like bonds and treasuries.

The uncertainty around the upcoming U.S. presidential election has only exacerbated the situation, with investors shunning stocks that would be affected mainly by a change of policies once there is a leadership change at the White House.  According to analysts at Bank of America, who ends up in the White House and Congress could have a significant impact on critical corners of the stock market.

“Profits accelerating are far more important than who is sitting in the Oval Office. But politics can make or break sub-sectors,” the firm wrote in a research note to investors.

Amid the headwinds, the overall equity market has been trading higher, with major indices led by the Dow and the S&P 500 rallying to record highs. The strong gains have come on most companies delivering solid financial results and shrugging off the effects of high interest rates. Nevertheless the rallies have resulted in overstretched valuations, raising serious concerns for the investment community.

“The market had moved into overbought territory, making it vulnerable to anything it perceives as negative … It’s now worried that the Fed has not declared victory on inflation, and not to mention, the concerns post-election,” said LPL Financial chief global strategist Quincy Krosby.

A resilient U.S. economy that has steered clear of recession has helped support most stocks in the Dow, helping fuel the upward momentum. The International Monetary Fund thinks growth in the U.S. will remain robust. In its latest World Economic Outlook, the IMF increased its estimate for U.S. GDP in 2024 to 2.8% from its 2.6% forecast in July while raising its 2025 growth forecast for the country. It’s the only advanced economy with its economic trajectory revised upwards for both years by the IMF. Nevertheless, it has warned of slowdowns in emerging markets.

“Projected slowdowns in the largest emerging market and developing economies imply a longer path to close the income gaps between poor and rich countries. Having growth stuck in low gear could also further exacerbate income inequality within economies,” the IMF warned.

With the U.S. economy expected to remain resilient as the Federal Reserve pushes forth with interest rate cuts, Dow stocks that have underperformed are well poised to bounce back. A lower interest rate environment on the back of improved economic conditions heading into year-end would make the case for the best Dow stocks to buy, according to analysts.

Our Methodology

To compile our list of the best Dow stocks to buy according to analysts, we started by analyzing the Dow Jones Industrial Average. We screened these stocks based on average price targets, focusing on stocks with significant upside potential. Finally, we ranked these companies in ascending order based on their price target upside as of October 23. We have also mentioned the hedge fund sentiment around each stock.

At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Chevron Corporation (NYSE:CVX)

Average Upside Potential as of October 23: 13.64%

Number of Hedge Fund Holders: 64

Chevron Corporation (NYSE:CVX) is one of the energy stocks that have come down tumbling in the aftermath of oil prices plunging from above $80 a barrel to lows of $70 a barrel. While the stock is flat for the year compared to a 13% gain for the Dow Jones index, it is one of the best Dow stocks to buy, according to analysts.

The fact that the company boasts of one of the lowest debt-to-equity ratios of 0.15 underlines its ability to generate significant cash flows, consequently maintaining low debt levels. Additionally, Chevron Corporation (NYSE:CVX) is one of the largest and most diversified energy companies that should continue to generate long-term value with oil prices above $40 a barrel.

Chevron boasts of an impressive track record of dividend growth supported by a strong balance sheet. It boasts an above-industry average yield of 4.4%, making it a solid investment play for passive income.  The company has increased its dividend payment for 37 consecutive years, which is an incredible feat given the challenges in the energy sector.

While falling oil prices will affect Chevron Corporation (NYSE:CVX), it is well-equipped to handle lower prices. The company is well positioned to generate enough cash flow for operations to cover its dividend, even with oil prices dropping to the $50 barrel level. Likewise, it can use its cash-rich solid balance to repurchase shares, bolstering its earnings per share.

By purchasing Hess, Chevron Corporation (NYSE:CVX) hopes to improve its capacity to prosper at lower oil prices further. That deal would greatly strengthen and extend Chevron’s production and free cash flow growth profile. On the other hand, analysts on Wall Street maintain a buy rating on Chevron with an average price argot of $171.50, implying a 13.64% upside potential.

According to Insider Monkey’s database for Q2 2024, 64 hedge funds had investments in Chevron, up from 62 in the first quarter.

In its Q4 2023 investor letter, Diamond Hill Capital’sDiamond Hill Large Cap Strategy shared insights on Chevron Corporation (NYSE:CVX):

“Other bottom contributors included Chevron Corporation (NYSE:CVX), Carrier Global and Becton, Dickinson. Shares of integrated oil and gas company Chevron were pressured as global oil production is growing — particularly in the US, which has now surpassed its past production levels — in turn pressuring oil prices and company profit margins.”

Overall CVX ranks 6th on our list of the best Dow stocks to buy according to analysts. While we acknowledge the potential of CVX as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than CVX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.

Disclosure: None. This article is originally published at Insider Monkey.