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One Dow stock to buy (and one to avoid) in third quarter, according to this trader

One Dow stock to buy (and one to avoid) in third quarter: Trader

The Dow Jones Industrial Average has capped off a rough first half.

The index is down 10% in 2020, and around 80% of the Dow 30 stocks are negative for the year. But, the Dow still managed to close out its second quarter with its best quarterly gain since 1987.

Todd Gordon, managing director at Ascent Wealth Partners, sees some of its components continuing higher.

"There's several names that we are constructive on that we hold in our portfolios, one of which we like is Home Depot," Gordon said on CNBC's "Trading Nation" on Tuesday. "The building supply stores have remained open during the shutdown. They were deemed essential services, they didn't have the disruptions that so many other brick-and-mortar shops did. So the housing sector has stayed strong. We have low, persistently low interest rates, there's tight supply on the low end, construction at the middle range."

Home Depot is one of the few Dow stocks positive for the year, up 15%. Shares have rallied 40% in the past three months.

"Home Depot is in a beautiful kind of parallel uptrend," said Gordon. It's "following a nice stair-step higher and that will show that we don't have resistance until about $350."

Home Depot trades at around $250. Shares would need to rally 40% to reach $350.

Not all of the Dow stocks are winners, though, says Gordon.

"We continue to be bearish and underweight energy, specifically … avoid Exxon. Prices have firmed in the second quarter, [but] there's just a ton of supply in the market … so it's going to cap prices," said Gordon.

Federated Hermes portfolio manager Steve Chiavarone expects broader markets to extend the second-quarter rally, though is hedging cautiously in case of any bumps on the road higher.

"The overarching theme here is that we are transitioning from recession to recovery. Now what's the strength of that recovery going to be? That's going to be largely dependent on how the Covid cases develop particularly across the Southern and Western region," Chiavarone said during the same segment.

As a precaution against any flare-ups, Chiavarone is looking to diversify outside of U.S. equities.

"For the first time in a long time, we took a little bit out of value sectors in the U.S., a little bit out of the growth which were rich, and we added a little bit to international developed, and the idea there is frankly the virus data has been more well behaved. And there seems to be some additional steps around political cohesion," said Chiavarone.

Disclosure: Ascent Wealth Partners holds Home Depot.