If you’re a fan of blue-chip stocks, then you probably love bargain blue chips. Why pay full price when you can buy the same stock while it’s on sale? However, a discounted stock isn’t always a stock worth buying. That’s true even when that bargain-priced name is one of the 30 hand-picked tickers that make up the Dow Jones Industrial Average (DJINDICES: ^DJI).
To this end, here’s a look at the Dow’s three biggest losers from October. Is their blue-chip status alone enough of a bullish argument to buy? Let’s investigate.
Upended in October
First and foremost, last month’s biggest Dow losers (from worst to least-worst) are IBM (NYSE: IBM), Intel (NASDAQ: INTC), and Boeing (NYSE: BA), with stock prices down 10%, 8%, and 6%, respectively, just in October. For comparison, the Dow Jones Industrial Average itself gained nearly 6% last month.
If you’re looking for a common theme behind these sell-offs, forget about it. There isn’t one. Each one of these setbacks had its own roots.
Take IBM’s sell-off, for instance. All of last month’s loss (and then some) was logged in one day a couple of weeks ago, in response to a disappointing third-quarter earnings report. Revenue fell just a bit short of most consensus estimates, but perhaps more concerning, adjusted revenue fell slightly on a year-over-year basis. Earnings tumbled just a bit as well, tainting what turned out to be a small earnings beat. IBM is on the verge of divesting its legacy businesses that are proving to be the fiscal drag, but investors aren’t seeing the glass as half-full.
As for Intel’s stumble, the bulk of its October loss also unfurled in just one day, and also the day following the release of its Q3 numbers. Per-share earnings of $1.71 were better than anticipated, while revenue of $18.1 billion just missed analysts’ outlooks. It was the company’s guidance, however, that did the bulk of October’s damage. CEO Pat Gelsinger cautioned shareholders during the quarterly earnings conference call that “gross margins will be below current levels for the next two to three years.” Investors responded by driving the stock price lower to the tune of nearly 12%, with most of that setback persisting through the end of the month.
Finally, Boeing shares were grounded (again) in October for all-too-familiar reasons. Boeing stock slowly lost altitude all month long in anticipation of what was confirmed with last week’s third-quarter report. That is, more manufacturing flaws found in the 787 Dreamliner, and last quarter’s 85 delivered planes fell short of expectations. Continued headwinds translated into a quarterly loss of $132 million and an adjusted per-share operating loss of $0.60, versus analyst expectations for a loss of $0.20 per share. Revenue fell short of projections as well, even if they were up 8% year over year.
What are the implications of these drops?
So now what? Are these pullbacks errant, setting up big bounces back? Or, did investors collectively make the right call? The answer depends on the Dow stock in question.
If you’re talking about IBM, last month’s sell-off is indeed a buying opportunity. The upcoming spinoff of its legacy business (which it calls Kyndryl) will leave the company heavily exposed to the hybrid cloud computing and artificial intelligence technology markets, both of which are proven growth arenas. There’s no value-minded arbitrage that can be done between now and the spinoff’s projected completion next week; shareholders will still be holding the new and old companies’ shares at a net value that reflects the unified company’s value right now. That unified company’s current stock price, however, still doesn’t fully reflect the aggregate potential of IBM as a whole or divided up into separate parts. Shares of IBM are presently priced at a modest 11 times next year’s projected profits, and earnings growth should be easier to muster if the two differing entities can each focus on doing fewer things better.
As for Intel and Boeing, the smart move here may be passing on both until there’s greater clarity about their futures.
That’s not necessarily the same thing as a sell recommendation if you own either stock. Both companies are survivors even if they’re no longer stalwarts, and each outfit is also a leader within its industry. But both Boeing and Intel face unique, bigger-picture problems that continue to trip their stocks up.
Until investors are able to see evidence that Intel is pushing past its supply chain and fab/foundry woes and Boeing’s production isn’t plagued by design flaws as well as the supply chain headache, don’t be surprised to see these tickers continue to be upended. There are better investment choices out there for newcomers, like the aforementioned IBM.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends Intel and 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.