The outsized returns of the S&P 500 this year were driven by the returns of just a handful of stocks. Remove the so-called Magnificent 7 from the equation and the benchmark index’s performance was relatively flat. The Dow Jones Industrial Average, on the other hand, enjoyed a much more broad-based movement higher. This is what led us to make this list of the best Dow stocks in 2023.
Make no mistake, there are a number of losers among the Dow 30 stocks, some spectacularly so (I’m looking at you Walgreens Boots Alliance (NASDAQ:WBA)). However, almost two-thirds of the index’s components are in positive territory and 11 are up by double-digit percentages.
It’s notable that although the DJIA is just 11% higher year-to-date, it is up 30% from its 2022 lows. Because it also just hit an all-time high, that’s the textbook definition of a bull market! It’s something the S&P 500 can’t claim because it’s failed to achieve new highs.
So with a rampaging bull on our hands, let’s take a closer look at the three best-performing Dow stocks of 2023 and see if they can repeat their performance next year.
Microsoft (MSFT)
Maybe it’s not so surprising to find Microsoft (NASDAQ:MSFT) is the third-best Dow stock this year. Since it’s also part of the Magnificent 7 it’s playing a big role in lifting both indexes this year. The Dow is a price-weighted index and Microsoft accounts for 6.6% of its total. That’s good enough to be the third biggest component behind UnitedHealth Group (NYSE:UNH) and Goldman Sachs (NYSE:GS).
Shares of Microsoft are up almost 56% this year in large part due to the explosion in artificial intelligence (AI) technology. Microsoft is both a partner of and an investor in OpenAI, the owner of generative AI chatbot ChatGPT. The tech star poured $13 billion into the AI startup and was instrumental in returning it to a sense of normalcy when turmoil struck last month. The company hired OpenAI founder Sam Altman after he was ousted as CEO and put him in charge of its AI unit. Microsoft then engineered Altman’s return to his company.
Microsoft has integrated ChatGPT into virtually all of its products. From the Bing search engine to its Teams collaborative tools and the Azure cloud services platform, generative AI is driving the products and tools forward. Yet the tech stock is more than just AI. It has a huge gaming business, for example, and it just partnered with Meta Platforms (NASDAQ:META) to make its vast game library available on Quest 2, 3, and Pro virtual reality headsets. With all this going for it, Microsoft looks like a Dow stock ready to repeat in 2024.
Intel (INTC)
Speaking of AI, although Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD) grab most of the headlines when it comes to these advanced chipsets, Intel (NASDAQ:INTC) is ready to take them on. Last week it unveiled its Gaudi3 chip for generative AI applications that will compete against Nvidia’s H100 similar to what AMD is doing with its MI300X. And like AMD, if Intel prices the new chip appropriately, it can steal a lot of current customers away from Nvidia’s pricer option.
Intel could also have the inside track when it comes to AI PCs. HP (NYSE:HPQ) is due to release an AI version next year that could ignite a renaissance in PC sales. Statista says more than 61% of PCs have Intel x86 processors in them, though that’s down from previous quarters. However, along with the Gaudi3 chip, Intel also announced new Core Ultra chips for Windows laptops and PCs as well as a fifth-generation Xeon server chip. Built on seven-nanometer wafers, CNBC says it indicates Intel’s commitment to catching up to Taiwan Semiconductor Manufacturing (NYSE:TSM).
Intel is one of the few chip companies still making its own chips. While it does farm out some designs to TSM, Intel’s foundry business is still winning new contracts from third parties. That should help the manufacturing component of its operationscontinue to grow.
While Intel doesn’t have the weighting Microsoft does in the Dow index, its stock surged 73% year-to-date. It’s making up for what it lacks with its 0.8% weighting by pouring on stock gains. It’s a chip stock that looks ready to continue its rebound in 2024.
Salesforce (CRM)
If Microsoft wasn’t a surprise as a winning Dow stock, Salesforce (NYSE:CRM) just might be. The customer-relationship management software stock is the best-performing stock on the index with shares doubling in 2023. It carries a 4.6% weighting in the DJIA so its big gains helped drive the index higher.
Like the other top Dow stocks, Salesforce’s gains were driven in part by AI’s massive popularity. The CRM stock is looking to transform itself from being the industry leader in the field into what CEO Marc Benioff calls its mission to be “the number one AI CRM.” He maintains AI is the reason Salesforce became the world’s third-largest enterprise software company by revenue.
Salesforce sales are ramping up with revenue 11% higher in 2023. It underscores the belief the CRM giant could have the best combination of top-line and bottom-line growth. It has a solid balance sheet with $8.4 billion in long-term debt but $11.9 billion in cash, equivalents, and short-term investments.
The stock is not cheap by traditional metrics so you are paying up for quality. It looks ready to have another good year in 2024 even if it’s not the Dow’s best-performing stock next year.
On the date of publication, Rich Duprey held a LONG position in WBA stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.