The Dow Jones Industrial Average is up 3.64% over the past month, and technical indicators show that it could extend much further. If last year’s repeat of the ‘Majestic Seven’ leading the broader indices again happens this year, we could be in for a bit of a wild ride.

Despite their stretched valuations, tech stocks will continue to deliver growth for investors this year. Also, we may see a lengthier composition of stocks compared to 2023’s rally. With lower P/E ratios and falling bond yields, in response to predicted interest rate cuts, some underappreciated Dow stocks could rise further.

Let’s examine three of those Dow stocks that may emerge as winners this year.

Microsoft (MSFT)

Microsoft (NASDAQ:MSFT) is one stock in last year’s Majestic Seven with plenty of energy reserves. Thanks to heavy investment in OpenAI, it’s a leader in the generative AI race by proxy.

We witnessed generative AI move from strength to strength in 2023. It began with its release and then progressed with GPT-4 and GPT-4 Turbo. Some analysts predict GPT-5 could be on the cards mid to late this year.

The newest GPT models are still far from reaching artificial general intelligence (AGI) levels, comparable to a human’s level of reasoning. Still, if the roadmap of previous AI models is a reliable indicator of future rollouts, we can expect GPT-5 to be significantly better at reasoning than GPT-4. Also, a likely feature would be to expand its context window to allow for longer prompts. This is an area in which other AI models like Anthropic’s Claude presently have an entrenched advantage.

It’s natural to assume that Microsoft will be the first beneficiary of the developments that OpenAI releases to the public. Currently, it’s providing an edge over its peers of companies like Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), and Amazon (NASDAQ:AMZN). AI progress may accelerate this year and beyond, which will give some buoyancy to MSFT’s stock price.

Coca-Cola (KO)

Just as I am bullish on tech stocks this year, I am also fond of defensive sectors such as consumer staples and healthcare. This brings us to Coca-Cola (NYSE:KO). This is one of those companies you could park your money in and forget about for 20 years with minimal stress.

First, if the indices continue to rally, these blue-chip Dividend Kings and Dividend Aristocrats may be a valuable hedge. At the same time, investors take more risk elsewhere instead of betting the whole farm. Secondly, the valuation of these brands is reasonable, with KO stock trading at just 24 times earnings. Investors who seek income may also return to dividend stocks like KO in the midst of falling interest rates.

Coca-Cola doesn’t offer the most attractive yield, but it’s still solid at 3.08%. From a dividend investing perspective, owning this company may be ideal for those with a long time horizon. They will benefit from its strong dividend growth rate of 3.36% over the past year three years.

Due to its defensive nature, the worldwide, iconic KO is arguably worth a spot in every investor’s portfolio.

Johnson & Johnson (JNJ)

Johnson & Johnson (NYSE:JNJ) is another great defensive play. Investors are unfairly underestimating its potential due to its pending talc litigation.

The reason I believe it’s unjust is because JNJ has already put aside $9 billion as it anticipates the legal costs. Therefore, the risk is contained.

Also, JNJ’s investors consider it a defensive stock, as some of its largest operating segments lie within growth-based industries such as medical technology and pharmaceuticals. This blends the best of both worlds, which many low-beta stocks like JNJ lack.

At present, Johnson & Johnson is undervalued on an EPS basis as per its long-term averages. Additionally, it may be undervalued according to its forward and historical growth rates.

On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.