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

It’s been a tough couple of months for buy-and-hold investors. Even before the market was able to recover from the sell-off linked to December’s resurgence of the COVID-19 pandemic, or the rumors of even more hikes to the Fed Funds Rate to combat rising inflation, Russian tanks began rolling into Ukraine, rekindling January’s selling effort. Not even blue chips are proving immune to news-prompted weakness. Following its 3.5% pullback in February, for instance, the Dow Jones Industrial Average (DJINDICES: ^DJI) now stands about 8% below its early January peak.

This weakness of course has some bargain-minded investors thinking about scooping up these beaten-down quality names while they’re still cheap. And there’s certainly no shortage of such stocks right now. The question arises though, is this the right move, right now? Clearly, there could be more downside to be dished out, with the uncertainty around the war in Ukraine continuing to generate market volatility.

Image source: Getty Images.

What were February’s blue-chip laggards?

February may have been bearish for the Dow Jones Industrial Average, but it was particularly problematic for Dow components Home Depot (NYSE: HD), 3M (NYSE: MMM), and IBM (NYSE: IBM). Those tickers tumbled 14%, 10.5%, and 8.3% (respectively) last month, leading the index’s sell-off. Not even stalwarts like these could resist the wave of worry that overcame investors in the wake of turmoil in Eastern Europe.

Now that the dust is starting to settle, though, an important detail is coming to light. That is, many investors indiscriminately dumped many of their holdings last month without considering which of them were worth holding onto despite the increased geopolitical tensions.

In other words, the market threw the baby out with the bathwater.

Take IBM for instance. While the crisis in Ukraine is disruptive to outfits like EPAM Systems — which relies heavily on software coders residing in Ukraine, Belarus, and Russia — IBM’s operations aren’t nearly as affected. The company has offices and manufacturing facilities all over the world, with many of them located domestically. Moreover, the nature of its business makes it resistant to disruptions of any sort. IBM offers a variety of hybrid cloud-computing services, and once a client has committed to IBM’s architecture, they tend not to change their mind for a few years. This is a particularly important nuance to investors who own IBM for its dividend as these customer relationships often generate monthly maintenance fees. Indeed, the company is now doing $13 billion worth of recurring revenue business per year, or nearly one-fourth of 2021’s top line.

3M is another good dividend-paying blue-chip name that’s neither significantly impacted by a resurgence of the COVID-19 pandemic nor the war in Ukraine. The company makes everything from Post-It notes, road signs, and industrial disinfectants to auto-body repair supplies and more. These are goods that consumers and institutions need in any environment.

As for Home Depot, it’s arguably the most vulnerable of the three Dow constituents in focus here. But that vulnerability is not because of what’s going on in eastern Europe or with the coronavirus contagion. Investors are increasingly fearful that impending interest-rate hikes will pull the rug out from underneath a red-hot housing market. It’s a legitimate concern too. Homebuilder confidence slumped for a second consecutive month in February after several months of rising readings, with builders also pointing to still-growing materials costs as another potential stumbling block.

But there’s more to the story. Demand for houses still outstrips supply at any price, according to the National Association of Homebuilders, and the remodeling market remains firm. Home Depot’s still benefiting from the housing industry’s broad tailwind.

All three of the aforementioned companies are catching a tailwind, in fact, making their stocks’ recent sell-offs a buying opportunity.

Act now to own low-risk stocks at great prices

This isn’t necessarily the case for all stocks, mind you. As I noted in a story about the Nasdaq‘s worst February performers, several higher-profile growth tech stocks are now paying a price for years’ worth of unjustified valuations and unsustainable growth. It could take weeks for all that froth to be burned off.

For more conservative, safer stocks, not much has really changed except those stocks’ prices. This is true of IBM, Home Depot, and 3M, but plenty of other quality names also got dumped with the bathwater last month. You may want to start shopping while the blue-chip sale’s still going on.

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James Brumley has no position in any of the stocks mentioned. The Motley Fool owns and recommends EPAM Systems and Home Depot. The Motley Fool recommends 3M and Nasdaq. The Motley Fool has a disclosure policy.

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