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Can You Still Buy the Dow Jones' Best-Performing May Stocks?

Motley Fool - Mon Jun 5, 5:18AM CDT

After leading the three major indexes last year, the Dow Jones Industrial Average has been a laggard in 2023. It's nearly flat this year while the Nasdaq has surged.

However, not every stock in the Dow is underperforming. Let's take a look at the three best performers in the blue chip index last month to see if any of them are worth buying today.

Several stock market charts overlaid on one another.

Image source: Getty Images.

1. Salesforce (up 12.6%)

In a month where tech stocks soared with the help of a blowout report from AI chip king Nvidia, it shouldn't be a surprise that a tech stock is leading the pack. In fact, the five top performers on the Dow last month were all tech stocks, but Salesforce (NYSE: CRM) was the clear leader.

Oddly, there was no major news out on Salesforce during the month. Instead, the stock seemed to gain on general enthusiasm for AI stocks as investors bid up shares of companies connected to AI, which include Salesforce.

The cloud stock launched Einstein GPT in March, which it calls the first generative AI for customer relationship management. Early in May, it also announced Slack GPT, which will enable generative AI integrations and different language models.

Salesforce actually reported earnings after hours on May 31 and the stock fell the following day after guidance was weaker than expected. However, the company's cost cuts are paying off -- adjusted earnings per share (EPS) nearly doubled as margins increased significantly.

Given its newfound focus on profitability, the stock could easily move higher from here.

2. Microsoft (up 6.9%)

It's no secret that Microsoft (NASDAQ: MSFT) is seen as a major player in AI thanks to its strategic partnership with OpenAI. This has enabled it to launch a new version of Bing, powered by ChatGPT, and introduce ChatGPT to other products, including its Azure cloud infrastructure services.

Like Salesforce, there was no single news item driving Microsoft higher last month. The tech giant jumped at the end of April on a strong earnings report, and in May, investors continued to cheer the company's efforts in AI.

One news report said the company was developing an AI processor to compete with Nvidia, which dominates the market, and a Bernstein analyst said that Microsoft's AI products could double its cloud revenue. Meanwhile, it's also planning to bid to make Bing the default search engine on the Firefox browser.

One analyst also said that Azure OpenAI customers were up 80% from April to May, reaching 4,500 customers, a sign the new generative AI technology is rapidly gaining traction.

At this point, Microsoft stock is expensive at a price-to-earnings ratio of 36, but it's clearly established itself as a leader in AI, which could deliver significant rewards for investors if the company is able to capitalize on the opportunity in AI.

3. Cisco (up 5.1%)

Finally, Cisco (NASDAQ: CSCO) rounds out the top three for the Dow last month. Cisco's gains came primarily after it reported earnings midway through the month.

Like the rest of the tech sector, the company is facing headwinds, but results were still better than expected.

Revenue rose 14% to $14.6 billion, and adjusted EPS jumped 15% to $1. Both numbers topped analyst expectations at $14.39 billion in revenue and $0.97 in adjusted EPS.

Like with the semiconductor sector, investors seem to see Cisco as a pick-and-shovel play on AI, and CEO Chuck Robbins even noted the growth potential from AI. The company also said it saw "modest" revenue growth in the upcoming fiscal year as it faces difficult comparisons with fiscal 2023, but it also warned of lengthening sales cycles.

While the beats on the top and bottom lines are encouraging, Cisco has been a laggard on the market for a long time, and it's going to take more than that to convince investors that it's capable of long-term outperformance.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cisco Systems, Microsoft, Nvidia, and Salesforce. The Motley Fool has a disclosure policy.

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