Is It Time to Buy the Dow Jones’ 3 Worst Performing January Stocks?

They may be blue chips worthy of inclusion in the Dow Jones Industrial Average (DJINDICES: ^DJI), but that didn't prevent Cisco Systems (NASDAQ: CSCO), Nike (NYSE: NKE), and Home Depot (NYSE: HD) from dishing out sizable losses last month. In January shares of Home Depot and Nike both fell more than 11%, while Cisco tumbled more than 12%. These laggards were such poor performers, in fact, that they led the Dow to a loss of 3.3% last month.

Some investors are already looking closely at these three beaten-down names as prospective purchases, and why not? A good stock is an even better buy at a lower price.

But just because they're cheaper now than they were a month ago isn't enough of a reason to take such a plunge. Take a step back and look at the bigger picture.

What went wrong

To be fair, the bearish market environment last month didn't help any of these names. On the other hand, all three of these Dow stocks bumped into their own unique headwinds in January.

Take Nike for example. After ending 2021 with a healthy gain of nearly 18%, the stock was particularly vulnerable to the mid-January downgrade from HSBC due to waning demand in China.

Nike shares did bounce back somewhat late in the month, buoyed by an upgrade from Wells Fargo. Analyst Kate Fitzsimons wrote, “Based on our industry checks in China, we see the brand as better equipped than most to manage the volatility, given its strong consumer connections, strategic partnerships, use of Express Lane, and greater use of marketing.” Investors' response to this counterargument, however, hasn't yet unwound the bulk of last month's selling.

^DJI data by YCharts

Cisco was also exceedingly vulnerable to profit-taking early this year following 2021's 40% advance; all it took was a continuation of the semiconductor shortage to exploit that vulnerability. Accelerating the sell-off, however, was a downgrade from Goldman Sachs rooted in concerns that global IT spending plans are now being curbed. Goldman analyst Rod Hall doesn't dislike Cisco at its present price, but does feel there's little upside left to tap.

As for Home Depot, while its stock was just as ripe for profit-taking as Cisco's and Nike's were after logging big gains through the end of 2021 anyway, it got a news-based bearish nudge as well. Most of last month's 11% setback took shape in the middle of January, when rising interest rates paired with rampant inflation and disappointing retail sales figures for December collectively spooked shareholders.

That knee-jerk selling has since cooled. In fact, shares have bounced back a bit over the course of the past couple of weeks. As is the case with Cisco and Nike, the recent bullishness is tepid, and so far lacks any meaningful follow-through.

Look at the bigger picture

None of these challenges are insurmountable. Indeed, two of the three headwinds discussed above are more likely than not only going to be temporary. That's the corporate world's waning demand for new and updated technologies like Cisco's networking solutions and the convergence of three concerns that could adversely impact Home Depot's business. The ill effects of rising rates, higher prices, and tepid retail consumption may be more perceptual than actual. Those perceptions will change if and when investors see all three of these stumbling blocks aren't quite as significant as is being described.

In other words, if you already own Home Depot, Cisco, or Nike, one rough month isn't necessarily a reason to dump them; that's particularly true if doing so would create an unwanted tax liability.

Image source: Getty Images.

If you take a closer look at these three companies' unique challenges, though, you'll see there's more to them than just a few days' worth of weakness. Technology investment budgets can take months to create, for instance, and just as many months to adjust. Any economic headwind also often makes technology-spending plans the first to be cut, as they're the easiest to cut. Most corporations already have “good enough for now” networking tools that don't absolutely require upgrades from Cisco.

Nike can also figure out how to handle its slowdown in China. Indeed, Wells Fargo's Fitzsimons thinks the company's doing better there than Nike appears to be getting credit for. In light of sociopolitical tensions that could be aggravated in the foreseeable future though, it's arguable there's more risk than reward with owning the stock at this point in time.

And Home Depot? Only time will tell just how much unbridled inflation and rising interest rates will crimp homebuilding, remodels, and home improvement. Such uncertainty won't help the stock.

The point is, there's always more to the story. These three companies are still blue chip components of the Dow, but they're each poised to face more than their fair share of challenges in the immediate future. There are too many other tickers out there more worth owning, even if they didn't slide lower last month.

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Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. James Brumley has no position in any of the stocks mentioned. The Motley Fool owns and recommends Cisco Systems, Home Depot, and Nike. The Motley Fool recommends Goldman Sachs. The Motley Fool has a disclosure policy.

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