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Like bargains? Sure, we all do, especially when those bargains come in the form of stocks that have gone “on sale” as a result of a sell-off. Not every name that takes a dip, however, is necessarily a bargain worth buying into. Sometimes these stocks have sold off for good reason.
With that as the backdrop, here’s a rundown of last month’s biggest losers among the S&P 500‘s (SNPINDEX: ^GSPC) constituent companies. These three names are all cheaper now than they were as of July, but are they actually worth stepping into at these lowered prices?
The S&P 500’s weakest links
In most months the market’s biggest losers tend to illustrate a broader theme. August, however, was an exception to this norm. The S&P 500’s big laggards from last month are industrial technology outfit IPG Photonics (NASDAQ: IPGP), pharmaceutical company Perrigo (NYSE: PRGO), and carmaker General Motors (NYSE: GM), down (respectively) 22%, 15%, and 14% versus the S&P 500’s August gain of nearly 3%. All tumbled for relatively unique reasons that have to be examined on a case-by-case basis.
IPG Photonics’ setback largely materialized in just one day — the day it reported second-quarter numbers that fell short of top- and bottom-line estimates despite improving on a year-over-year basis. But, the crux of the pullback likely stemmed from the company’s lackluster guidance for the quarter now underway. IPG is forecasting revenue of $350 million to $380 million for the three-month stretch to end in September, but says that will only generate earnings of $1.10 to $1.40 per share. Analysts had been modeling an average profit of $1.45 per share, suggesting the costs of making and marketing its laser hardware in the current environment are higher than investors realized.
Image source: Getty Images.
Perrigo’s August pullback also unfurled in one day, and like IPG’s, that pullback came in response to its second-quarter earnings shortfall. The company’s operating earnings of $0.50 per share fell short of the $0.60 investors were anticipating, and were down from the year-ago comparison of $0.59 per share. The earnings miss, however, was for a most curious reason. In the world’s effort to avoid contracting the coronavirus, people socially distancing are also catching fewer colds, crimping sales of Perrigo’s cold and flu treatment products.
Finally, General Motors drifted lower over the course of last month. Like Perrigo and IPG Photonics. though, the knee-jerk response to last quarter’s results was the single-worst day of the sell-off.
The numbers themselves are actually pretty solid. Revenue of $34.2 billion and earnings of $1.97 per share, both up versus the numbers from Q2 of last year, topped most expectations. For good measure, GM upped its full-year operating profit outlook to somewhere between $5.40 and $6.40 per share. What the carmaker didn’t do, however, is convince investors that its challenges caused by the worldwide chip shortage will abate anytime soon.
To buy, or not to buy?
Fine, but which — if any — of these dips are errant ones that are ultimately buying opportunities?
Perrigo is a compelling prospect for less aggressive investors looking for a bit more predictability, and perhaps looking for a decent dividend to boot. The common cold may be on the defensive right now, but once the pandemic is put in the rearview mirror, people are likely to let down their germ guard again. New investors will be stepping in at a yield of just under 2.4%. Also bear in mind that Perrigo is hardly just over-the-counter cold and flu treatments, as it offers a full range of consumer self-care products.
IPG Photonics is another S&P 500 stpck worth buying after its recent pullback, which caps off nearly a 30% decline from its January peak. The profit outlook for the quarter currently underway isn’t thrilling, but take a step back and look at the bigger picture. This year’s and next year’s top and bottom lines are both projected to grow at a healthy clip. Its wares are in perpetual demand.
As for General Motors, the company will survive. Indeed, its big foray into electric vehicles should restore GM’s relevancy with consumers in a much-needed way. But, it’s also got some major problems to deal with here, not the least of which is perception.
Investors already feared it was behind on the EV front and forced to play catch-up. Now it’s seen as a major victim of supply chain woes that may not end anytime soon. Whether or not that assessment is on target isn’t really the point. As long as the market feels General Motors is limping along (a perception exacerbated by a resurgence of the COVID-19 pandemic), the stock remains too vulnerable to own. That’s especially the case in light of the 250% gain shares made between last year’s low and this June’s peak. Most of that gain is still intact, leaving GM shares subject to further profit-taking.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends IPG Photonics. The Motley Fool has a disclosure policy.
