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

If you like to buy stocks while they’re on sale, there’s certainly no shortage of choices right now. The S&P 500 (SNPINDEX: ^GSPC) fell almost 9% in April alone, with nearly 200 of its constituents down by double-digit percentages in April. A handful fell by more than 30%, making them particularly tempting targets for the bargain-minded.

But if you’re eyeing some of these beaten-down names just because they’ve tumbled so much, take a step back and give the idea a second thought. While these tickers may be cheap compared to their prices just a little over a month ago, their pullbacks alone don’t necessarily make them worth owning now.

Image source: Getty Images.

What went wrong?

There’s no need to dance around the issue: Last month’s biggest losers among the S&P 500’s stocks are Nvidia (NASDAQ: NVDA), Align Technology (NASDAQ: ALGN), and Netflix (NASDAQ: NFLX), down 32%, 33.5%, and a whopping 49%, respectively.

^SPX data by YCharts

It’s pretty clear that April was horrible for some of the market’s best-known names. Most of the weakness can be chalked up to lackluster first-quarter results and equally uncompelling guidance for the current quarter and beyond.

Take Netflix. You likely already know the streaming video giant suffered its first net subscriber loss in over a decade last quarter, shedding 200,000 paying customers. Were it not for the fallout from Russia’s invasion of Ukraine, the company reports it would have added 500,000 users. Even so, Netflix is expecting to lose 2 million subscribers for the quarter now underway, suggesting the on-demand video industry is indeed nearing a point of saturation that will force hyper-competition. The market is becoming so competitive that Netflix is mulling the idea of an ad-subsidized version of its service, potentially crossing a line CEO Reed Hastings has said in the past he’d never cross.

As for Nvidia, don’t look for headlines to directly explain last month’s weakness — you won’t find them. Rather, blame circumstances, and Intel. Nvidia’s technological rival earned $0.87 per share for the three-month stretch ending in March, topping expectations. However, earnings guidance of only $0.70 per share for the current quarter fell short of the $0.83 analysts were collectively expecting.

It’s worth noting, however, that Intel’s numbers only exacerbated technology-led market weakness that was underway before its quarterly figures were posted. While the sector led the charge higher for the better part of 2021, the aggressive growth stocks investors snap up in a bullish environment are also the first names to be shed when the picture gets a little rocky.

Finally, while Align had been dragged lower with the rest of the market in April, its biggest single-day loss stems from the market’s bearish response to its first-quarter results. Although up year over year, sales of $973.2 million missed expectations of just over $1 billion, while operating earnings of $2.13 per share fell short of the $2.30 analysts were modeling.

The company attributes the disappointing numbers to the lingering COVID-19 pandemic as well as the conflict in Ukraine. While investors don’t appear to doubt the unfair causes of the tepid results, they’re not looking past them either.

Keep your powder dry

The question remains: Are any or all of these S&P 500 stocks buys following their steep sell-offs?

The usual answer to the question is no — big pullbacks alone aren’t a reason to buy a stock. First and foremost, a stock must be worth owning to step into it. While temporary setbacks make for good entry points, for true long-term investors looking for quality stocks to hold, such dips shouldn’t matter too much; trying to time your trades usually works against you more than it helps.

But 32%, 33%, and 49% discounts on some of the market’s biggest winners of the recent past? Those sorts of sale prices don’t come around very often.

The smart-money answer is still the same: As juicy as those pullbacks might make these stocks, too many questions remain to blindly buy them. Chief among them is Netflix’s uncertainty about when it’s actually going to get around to addressing its competitive threats. Meanwhile, Nvidia’s overhang is lingering supply-chain problems and the prospect of a recession that could undermine demand for computer and data center hardware. Finally, although Align Technology should at this point seemingly be shielded from external factors like COVID-19 and the crisis in Ukraine, it clearly isn’t. Answers to these questions aren’t in the near-term cards either, even with Nvidia’s fiscal Q1 results scheduled for late May.

None of this is to suggest you’ll regret buying one or more of these stocks right now. You may be well-rewarded for taking such a risk. It’s just to suggest the big pullbacks themselves aren’t a good enough reason for most investors to jump in just yet. There’s got to be a little more clarity and certainty than any of them currently offer to truly dig in for the long haul.

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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Align Technology, Intel, Netflix, and Nvidia. The Motley Fool 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.

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