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

If you’re a bargain-minded investor, there’s certainly no shortage of stocks priced at a discount right now. Last month was more or less a breakeven for the broad market thanks to last week’s big bounce. For more than a few tickers though, the selling didn’t ease.

Before simply plowing into even the best of these beaten-down names from the S&P 500 index just because they’re beaten down, take a moment, take a step back, and take a breath. This is no longer the simple “buy-on-the-dlp” environment we all came to know and love for the better part of 2021. Everyone needs to weigh things more carefully now, appreciating that the market may be trying to tell us something by rewarding some stocks while upending others.

Image source: Getty Images.

Why they’re the worst of the worst

Overall, stocks as a whole did all right last month. The S&P 500 essentially ended May where it started it, finally stopping — at least for the time being — what’s turned into a sizable sell-off for the year.

Not every S&P 500 constituent followed suit, however. A handful of names lost a lot of ground. The worst of the worst performers? Under Armour (NYSE: UAA) (NYSE: UA), Target (NYSE: TGT), and DexCom (NASDAQ: DXCM), which fell nearly 32%, 29%, and 27% (respectively) in May.

UA data by YCharts

The bulk of DexCom’s weakness stems from speculation it was mulling an acquisition of indirect rival Insulet — a rumor that DexCom has since officially debunked. The combination of DexCom’s glucose monitoring technology and Insulet’s insulin pumps has its obvious upside. The timing of such a pairing was suspect, however, and the union of the two companies could present more complications than potential synergies.

Under Armour’s stock is down largely in response to news that current CEO Patrik Frisk is stepping down from the role, presenting uncertainty regarding the athletic apparel brand’s future. Adding to this investor angst is the fact that well-loved founder and former CEO Kevin Plank assured investors that he won’t be taking the helm again.

COO Colin Browne is serving as interim president and CEO while the search for a permanent head begins. Although Browne is capable enough, it’s arguably the worst possible time for Under Armour to be without permanent, decisive leadership.

And as for Target, while the retailer is surviving a tough inflationary environment, it’s hardly thriving in it. Shares suffered their worst single-day setback in years in the middle of May following an unexpected dip in last quarter’s earnings — from $3.69 per share to $2.19 — which also fell short of analysts’ estimates of $3.07 per share. While rival Walmart‘s lackluster quarterly report partially prepared investors for Target’s cost-crimped numbers, the market’s come to expect better from the smaller, nimbler company.

To buy or not to buy?

So are any of these tickers worth buying after last month’s setbacks?

To be clear, if you already own or end up purchasing any (or all) of these three names, you’ll probably be OK. These companies have all earned their way into the S&P 500; they’re clearly doing at least some things well.

Don’t be too eager to dig into these stocks solely because last month’s stumbles seem so over the top, however. It can’t be stressed enough — last year’s sweeping bullishness isn’t the norm.

While initially viewed in a bearish light, in retrospect the pandemic was more stimulative than stagnating. Consumers not only kept consuming but had to spend differently to adapt to lockdowns. Certain slivers of the economy that aren’t often boosted suddenly experienced strong demand (personal computers, streaming services, logistics, cybersecurity, etc.), while other areas didn’t exactly suffer as a result. This particular rising tide ended up lifting all boats more or less equally, making stock picking a relatively easy endeavor.

This year has not only been a reminder to never take such bullishness for granted but also marks the beginning of a great decoupling. Rather than buying any and all stocks indiscriminately, investors are now opting for reliable performers and finally steering clear of companies with fuzzier futures. While DexCom’s something of an exception, there’s little doubt that Target and Under Armour are not only facing unexpected challenges but facing challenges that could linger for far longer than most investors care to wait. The recent selling is in many ways a warning of what’s to come.

And it’s not just these S&P 500 stocks waving red flags regarding their foreseeable futures. A bunch of other high-profile stocks suffered similar setbacks in May for comparable, longer-lived reasons that could weigh on investors’ minds for the foreseeable future.

This isn’t to say these three stocks can never climb again. But it does say a sharp sell-off alone isn’t a good enough reason right now to dive into any stock.

The moral of the story is: Know your environment — we’re back in a so-called stock picker’s market.

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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target and Under Armour (C Shares). The Motley Fool recommends DexCom, Insulet, and Under Armour (A Shares). The Motley Fool has a disclosure policy.

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