Should You Buy the Dow Jones' 3 Worst-Performing 2022 Stocks?

This post was originally published on this site

As you probably know, the stock market has been rather weak in 2022 so far, with most major averages down significantly. The Dow Jones Industrial Average is no exception. As of Sept. 8, the benchmark index has fallen by 13% year to date.

And keep in mind that this is the overall index’s decline, and there are 30 stocks that make up the Dow. Some of them have performed much worse.

Let’s get right to it. Through the first week of September, here are the three worst-performing stocks out of the 30 components of the Dow Jones Industrial Average:

Company (Symbol)

Industry

Total Return Year-to-Date

Nike (NKE 2.06%)

Apparel

(35.6%)

Intel (INTC 2.31%)

Semiconductors

(39.7%)

Salesforce (CRM 3.63%)

Software

(40.1%)

Data source: yCharts. Returns through 9/7/2022 midday, and parenthesis indicate negative numbers.

Why have these stocks performed so badly?

All three of these companies are down for a reason. Sure, overall stock market weakness certainly had something to do with it (especially with tech companies Intel and Salesforce), but there are company-specific headwinds in all three cases.

Nike, which until recently was the worst-performing stock in the Dow, saw the worst of its decline after its fiscal fourth quarter earnings report was released in June. Despite beating expectations on both the top and bottom lines, Nike’s management cautioned investors that gross margins are expected to decline in the 2023 fiscal year.

Intel’s recent results missed expectations for revenue, and not just by a little bit. Analysts were calling for $17.9 billion in the second quarter, but the company posted a 22% year-over-year decline to $15.3 billion. Plus, Intel reported a net loss, while analysts had been looking for a profit. And just like many other companies, Intel lowered its future outlook, specifically citing supply chain challenges.

Salesforce also recently lowered its full-year guidance (you may be seeing a pattern develop here). In short, the company is worried that its customers might become cautious when it comes to investing in new software products for their businesses. Plus, four out of the five divisions of its subscriptions and services business reported slowing growth in the latest quarter.

Are these stocks a buy now?

First of all, it’s worth pointing out that it’s not a good idea to buy any stock simply because the price went down. Sure, it’s better to pay less than more, all other factors being equal, but it’s important to distinguish between a bargain and a company facing long-term problems.

By being included in the Dow, it’s safe to assume that these are relatively mature and stable businesses that are among the leaders in their respective industries. And that’s definitely the case here. Salesforce is the market leader in CRM software, Intel is the largest company in its chipmaking business, and Nike is the athletic apparel leader. The question is whether the headwinds that have caused these stocks to become so beaten down are short-term issues or long-term problems. For example, Salesforce recently lowered its forward guidance and expects businesses to pump the brakes on spending in the face of economic uncertainty, but at some point, the rising-rate and inflationary environment will come to an end. On the other hand, Intel is facing tough competition from rivals, and if it starts losing serious market share, it could be a thesis buster.

The point is that after doing some digging, you’re confident that these businesses will remain strong for years to come, then buying at these lower share prices could be a smart move. But it’s important to keep in mind that all three of these are down for good reasons, and investors should expect quite a roller coaster ride as the current market uncertainty plays out.

Matthew Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel, Nike, and Salesforce, Inc. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel and short January 2023 $57.50 puts on Intel. The Motley Fool has a disclosure policy.