Is It Time to Buy the S&P 500’s 3 Worst-Performing October Stocks?

Last month was a pretty good one for large-cap stocks, all in all. The S&P 500 (SNPINDEX: ^GSPC) rallied nearly 6% past September’s close and started November on a bullish foot as well. Not every S&P 500 component is doing quite as well, though. In fact, despite their notoriety and status as an important slice of the overall American economy, a handful of the index’s constituents did downright poorly in October.

For some investors, this weakness is something to avoid. For other investors, however, these pullbacks may represent an opportunity to step into some quality names on the cheap. As is usually the case, such a decision is a case-by-case matter.

Image source: Getty Images.

With that as the backdrop, here’s a closer look at the S&P 500’s three worst-performing names in October, with some help in making a buy/no-buy decision.

Laggards and losers

While the S&P 500 logged gains, shares of S&P 500 constituent companies Twitter (NYSE: TWTR), Carnival (NYSE: CCL) (NYSE: CUK), and Citrix Systems (NASDAQ: CTXS) saw their stock prices tumble 11.8%, 11.4%, and 11.3%, respectively, in October. The reasons for the sell-offs are as varied as the companies themselves.

Citrix took a tumble in response to the unexpected and abrupt exit of CEO David J. Henshall. While the company is in adept hands under the interim leadership of board chairman Bob Calderoni, the nature and sheer speed of the change implies internal turmoil. Underscoring this turmoil is the decision to postpone the company’s investor day event previously scheduled for Nov. 4. Citrix has been pegged as a buyout candidate for some time now, but this shakeup casts doubt as to when — or even if — that might happen.

As for Carnival, blame the lingering COVID-19 pandemic, mostly. While the maritime cruise company is still planning on full utilization of its U.S.-departure capacity during the first half of the coming year, new cruise cancellations and China’s slowing economic growth all work against the industry. Carnival is also issuing $2 billion worth of new debt to refinance outstanding debt nearing maturity, but in that these new bonds are considered “junk,” it’s a reminder of the company’s tenuous fiscal position.

Finally, Twitter hit the skids after posting mixed third-quarter results. Revenue of $1.28 billion was up 37% year over year, and though the company posted a loss for the quarter, that loss stemmed from a big one-time charge linked to the settlement of a lawsuit. Twitter would have otherwise turned a profit, albeit a small one. The crux of the post-release weakness was lackluster user growth and similarly lackluster guidance. Twitter’s daily active user count of 211 million fell short of analysts’ estimates of 212.6 million, and while revenue guidance of $1.5 billion and $1.6 billion for the quarter now underway would be a marked improvement on last year’s fourth-quarter top line of $1.29 billion, the top end of that range is almost beneath the consensus estimate of $1.58 billion.

A handful of analyst comments made in response to Twitter’s Q3 results and fourth-quarter outlook suggest the company could face a variety of headwinds through 2022.

Yes to Twitter, no to Citrix, and maybe to Carnival

Investors looking to buy a deeply discounted large-cap stock will want to start (and maybe finish) with Twitter.

Admittedly, its fourth-quarter top-line guidance isn’t thrilling, and its daily active user count for the third quarter fell short of estimates. Keep things in perspective, though. Even at the low end of its Q4 guidance range, Twitter is still on pace to grow its revenue to the tune of at least 16%. Also bear in mind that while the company said it wasn’t adversely impacted by new privacy-minded restrictions put in place by Apple for its iOS-using devices like the iPad and iPhone, that’s a difficult call to make. It’s likely Apple’s algorithm changes at least made some impact, which, either way, Twitter is pushing through.

Carnival is a trickier name to judge. Clearly, the lingering pandemic is taking a toll. But, as the coronavirus contagion appears to mostly be in retreat and consumers are getting interested in travel again — some for the first time in over a year — it’s a prospect that will require ongoing monitoring.

The only name of the three that’s best left avoided right now (and until further notice) is Citrix. Not only are the circumstances behind Henshall’s exit unusual, but the lack of explanation for his exit is also a bit suspicious. There may be deeper problems in play that just aren’t clear year yet, presenting risks no investor needs to take on when so many other options are out there.

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James Brumley has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple and Twitter. The Motley Fool recommends Carnival and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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