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

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The Dow Jones Index is made up of 30 of the largest and most dominant companies on the U.S. stock exchanges. However, none of them have had a positive year. So far, the best performer of 2022 is Johnson & Johnson, which is down 0.2% this year.

As for the worst performers, Intel (INTC 3.41%), Nike (NKE 1.92%), and Salesforce (CRM 1.70%) are down 47.5%, 45.9%, and 42.3%, respectively, as of October 18. With these companies down so much, investors may wonder if now is the right time to establish a position in these companies. After all, they are significantly on sale.

Intel

Intel used to be the gold standard for technology companies. Its processors, memory, and other semiconductor products were revolutionary in the computing field. A common saying was that Intel allowed rival chipmaker Advanced Micro Devices to exist so Intel wouldn’t have to deal with antitrust lawsuits due to its superior technology. Now that script has flipped.

In the second quarter, Intel’s revenue fell 22% YOY (year-over-year) to $15.3 billion. In particular, Intel blamed its Client Computing (personal computers) and Data Center and AI group for the falling revenue. These two segments’ sales dropped by 25% and 16%, respectively.

Now let’s compare that to AMD. In Q2, Client revenue (similar to Intel’s Client Computing) was up 25% YOY, and Data Center sales rose 83% YOY. So in Q2, demand seemed to be there, but AMD did a better job of business execution than Intel.

Moreover, a storm is coming. AMD, which executed much better in Q2 and in multiple previous years, recently announced preliminary Q3 that saw Client demand disappear (the segment was down 40% YOY), but Data Center demand remained strong at 45% growth. If AMD had a lousy quarter, I can’t imagine what Intel will report on October 27.

Even though Intel trades for a dirt cheap 5.5 times earnings, it could get even cheaper if its execution is similar to Q2. I see no reason to buy Intel’s stock until its execution improves compared to its competition.

Nike

Nike’s most recent quarter should be a warning sign for other retailers. As many companies stocked up on inventory after massive demand in 2020 and 2021, that demand is now fleeting. In the quarter, Nike’s gross margin dropped due to liquidating its excess inventories across North America.

Even with this liquidation, Nike’s inventories were up 44% from last year, so the pain appears far from over. Regardless, Nike’s revenues rose 4% YOY to $12.7 billion in its 2023 fiscal year Q1 (ending August 31). Earnings per share (EPS) were down 20% to $0.93, but its price-to-earnings ratio remains steep at 25.4. 

Even though Nike has always traded at a premium valuation, it doesn’t seem to be living up to its reputation right now. Nike’s supply and demand imbalance likely won’t be solved soon, and with consumer spending tightening up, it could face top-line pressure.

Nike’s woes may not be over, and as its valuation returns to average levels, investors should be wary of Nike, at least for the near term.

Salesforce

Salesforce is more under the radar than Intel or Nike. Its product suite consists of various customer relationship management software programs, as well as data analytics like Tableau and internal communication tools like Slack.

Despite what the stock price says, it has also had a much different year than its other two basement dwellers.

In Q2 of its fiscal year 2023 (ending July 31), its revenue rose 22% YOY, and Salesforce’s cash balance was strong enough to announce a $10 billion share repurchase plan. It also delivered impressive full-year guidance, with cash flows expected to rise between 16% and 17%. Additionally, analysts expect 14.7% growth next year, despite the economic headwinds that are stirring.

While Salesforce’s price-to-earnings metric isn’t useful because it is not fully profitable, it trades for a reasonable 27 times free cash flow and a bargain 5.2 times sales.

Salesforce’s 2022 drop has been associated with high-flying tech stocks. While this is a valid relationship, the sell-off has been entirely overdone. As a result, I think Salesforce is a great buy now and is by far the best stock to buy out of this trio.

Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, Nike, and Salesforce, Inc. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, short January 2023 $57.50 puts on Intel, and short January 2025 $45 puts on Intel. The Motley Fool has a disclosure policy.

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