The Dow Jones Industrial Average is a front-row seat to the unfolding story of American business. Dating back to the late 1800s, the index tracks 30 of the most influential companies in the stock market and provides investors with a real-time pulse check on the health of the U.S. economy.
Although the index has its flaws, it can be an excellent place to unearth companies with solid financial footing and robust competitive advantages. Here are three Dow stocks you can confidently buy and hold for the long haul.
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1. Visa
The first stock to buy and hold for the long haul is Visa (V 0.43%). Visa operates the world's largest payment network, processing over $14 trillion in total payment volume. This is nearly double that of its next closest competitor, Mastercard, and shows how much of a chokehold the payment giant has on the industry.
Over six decades, Visa has built up a network of merchants, customers, and banking partners, making it a staple in the payment processing business today. The company's broad customer base and trust among banks and merchants make it difficult to take down, giving the business an incredibly strong network effect.
The company partners with banks to offer branded cards and earns a fee whenever it processes transactions through its network. In return, it shares some of those fees with its banking partners.
Visa's banking partners hold on to the credit card loans, so Visa itself doesn't take on any credit risk. For this reason, Visa's business can be incredibly resilient and grow alongside economic growth and inflation, which results in increased spending in the economy. While this can make Visa more vulnerable during economic slowdowns, it positions the company well during economic expansions, which tend to last much longer.
Growing emerging market economies could be another tailwind for the business. According to Grand View Research, the global payment processing market is projected to grow by 14.5% annually through 2030, giving Visa excellent upside potential for long-term investors.
2. JPMorgan Chase
The next stock that can be an excellent holding for patient investors is JPMorgan Chase (JPM 1.66%). For the past couple of decades, JPMorgan Chase has proven to be one of the best-run banks in the U.S.
Under the leadership of CEO Jamie Dimon, JPMorgan navigated the Subprime Mortgage Crisis in 2008, over a decade of ultra-low interest rates, the COVID-19 pandemic, the subsequent post-pandemic inflation, and the fastest pace of interest rate increases in over four decades. Today, the bank boasts over $3.4 trillion in assets, making it the largest bank in the U.S. by a long shot.
What has helped JPMorgan is its approach to managing its fortress balance sheet, managing the possible tail risks, and giving it flexibility when opportunities arise.
One example is the most recent inflationary environment that emerged a few years back. When many other banks were adding loans to their balance sheets, JPMorgan took a patient approach and effectively "hoarded cash" to prepare for the tail risk of higher-than-expected inflation and interest rates. This prudent approach paid off. JPMorgan emerged victorious last year when the federal government auctioned off First Republic Bank, which went under amid a slew of regional bank failures.
JPMorgan has a firm financial foundation, and its multi-pronged approach to managing risk and navigating economic turbulence makes it another stellar stock to own for the long haul.
3. American Express
The last stock on this list that can be an excellent long-term investment is American Express (AXP 1.17%). American Express is known for its iconic branding, positioning it as a luxury brand that customers associate with the finer things in life. It's like an exclusive club, and everyone wants in.
The Black Card (aka American Express Centurion Card) is an invite-only card that reportedly requires at least $500,000 to $1 million in annual spending to even be considered. The more widely available Platinum Card commands a $695 annual fee and offers perks and rewards from high-end travel providers, luxury hotels, airlines, and high-end clothing lines.
Like Visa, American Express earns a fee from merchants when it processes payments through its network. Unlike Visa, American Express holds on to the credit card loans it makes. This allows it to earn fees and interest income, which has been an excellent source of growth in today's higher-interest-rate environment.
Holding on to credit card loans also exposes American Express to possible losses through rising credit card delinquencies. However, it has an advantage in that its premium customer base can better weather economic downturns and high inflation.
American Express' branding and positioning have long interested Berkshire Hathaway CEO Warren Buffett, who has been invested in the stock since 1993. It is also why the company has grown so well with the U.S. economy and why American Express is another excellent stock to add to your long-term investment portfolio today.
