In October, the Dow experienced a slight decline, influenced by unsatisfactory earnings reports from companies such as Microsoft and Meta Platforms, which affected the indexes unfavorably at the month’s close. Additionally, an accounting scandal involving AI server manufacturer Super Micro Computer exerted downward pressure on AI stocks.
The end-of-month market downturn suggests potential buying opportunities, prompting a review of the three poorest performers in October to determine if any of these blue-chip stocks are worthwhile purchases.
1. Nike (down 12.8%)
Nike continued experiencing challenges in the previous month, marking another quarter of lackluster performance. The sportswear company is experiencing a loss in market share to emerging competitors and is addressing past errors made under former CEO John Donahoe. In September, Nike replaced its CEO with company veteran Elliott Hill. With both revenue and profits declining significantly, Nike faces the task of stabilizing and revitalizing its growth. Hill, known for leading Nike’s product and marketplace division, is viewed as a suitable candidate for the turnaround. Part of the recovery strategy involves rebuilding the wholesale business, previously deprioritized in favor of a direct-to-consumer approach, and refreshing product offerings to reduce reliance on classic styles. While potential exists for a recovery in Nike’s stock, observing tangible progress is advisable before recommending a purchase.
2. Merck (down 9.9%)
Merck, a pharmaceutical firm, also underperformed on the Dow in October. The stock saw consistent declines due to increasing interest rates, impacting dividend-paying stocks like Merck, which has a 2.9% dividend yield. Despite delivering a robust earnings report at October’s end, Merck’s stock depreciated. The quarter saw a 4% increase in revenue, reaching $16.7 billion, surpassing expectations of $16.46 billion. Keytruda, Merck’s cancer immunotherapy drug, drove sales with a 17% rise to $7.4 billion, nearly half of the company’s revenue. Adjusted earnings per share were reported at $1.57, exceeding the projected $1.50. Although animal health sales rose by 6%, other pharmaceutical lines like Gardasil, ProQuad, and Januvia saw declines, raising concerns about Merck’s reliance on Keytruda. Given its gradual revenue growth, Merck’s stock does not present a compelling buy, even after the recent dip.
3. Dow (down 9.6%)
Dow, a chemical manufacturer, experienced consistent losses throughout October, ending as the third weakest performer among blue-chip stocks with a 9.6% decline. While no single factor caused the drop, the increase in interest rates seemed to affect Dow, a cyclical stock sensitive to economic change. The company reported a 1% increase in net sales, totaling $10.9 billion, with a 1% volume growth and stable pricing. Adjusted earnings per share slightly decreased from $0.48 to $0.47. Despite its recent underperformance compared to the Dow Jones Industrial Average and S&P 500, Dow offers a 5.7% dividend yield, appealing to dividend investors. The company anticipates an improving economic cycle and is targeting over $3 billion in earnings by 2030, although specific guidance was not provided.
Disclosure Note: Randi Zuckerberg, the former director of market development and spokesperson for Facebook, and sister to Mark Zuckerberg, CEO of Meta Platforms, is affiliated with the Motley Fool’s board of directors. Jeremy Bowman holds positions in Meta Platforms and Nike. The Motley Fool has investments in Merck, Meta Platforms, Microsoft, and Nike, and recommends key options in Microsoft. The disclosure policy of The Motley Fool is available for review.
