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If you’re a fan of buying blue-chip stocks while they’re on sale, now certainly seems like the time to go shopping. Although the Dow Jones Industrial Average (DJINDICES: ^DJI) essentially finished last month where it started, Dow constituents Cisco Systems (NASDAQ: CSCO), Boeing (NYSE: BA), and Walmart (NYSE: WMT) lost 8%, 12%, and nearly 16%, respectively, of their value in May.
However, before plowing into these well-known names just because they’ve been up-ended, you might want to take a step back and look at the bigger picture. Things aren’t working quite like they were just a few months ago. Namely, not every stock is readily rebounding from steep sell-offs.
There’s a reason.
Image source: Getty Images.
Here come the headwinds
You can guess why Boeing shares struggled as much as they did last month … more of the same issues its been dealing with for the past few years. While the aircraft manufacturer seems to have fully addressed all of its issues with the 787 MAX, airlines remain a bit hesitant to commit to new plane purchases, while Boeing itself is still playing catch-up. Although its first-quarter results were actually posted in late April, the bigger-than-expected loss chipped away at the stock all last month by chipping away at investors’ psyches.
Networking technology giant Cisco took most of its May loss back on May 19, after falling short of last quarter’s revenue expectations, and warning investors that the current quarter’s top line wouldn’t be as strong as initially suggested. While renewed COVID-19 lockdowns and the subsequent supply chain problems are the culprit, they still stand in the way of Cisco’s top- and bottom-line growth.
Perhaps the most noteworthy setback among the Dow’s 30 names in May, however, is Walmart’s. The usually reliable retailer ended up falling short of its first-quarter earnings estimates of $1.48 per share, booking a profit of only $1.30, down from $1.69 per share in the same quarter a year earlier. Higher wholesale prices paired with rising freight and personnel costs are taking an even bigger toll than anticipated. Perhaps worse, an end to this inflationary pressure is nowhere in sight, prompting many Walmart shareholders to close out their positions.
Take your trader hat off, put your investor hat back on
While down, these blue-chip companies are anything but out. Consumers will always need to buy basic goods. The world needs to travel by air, and airlines can’t fly aging fleets forever. Now that we’ve grown accustomed to being able to access the internet from anywhere, the need for networking solutions is never going to dry up. All three of these companies will be around five years from now, and probably 50 years from now (if not longer).
There’s a reason some stocks are struggling while others are rising now though, when through the very end of last year it seemed as if all stocks would remain in a perpetual rally. That reason is sheer reality — investors are starting to see the inflationary toll that trillions of dollars’ worth of stimulus can take. They’re also starting to digest the possibility that the pandemic may never really end, but instead will ease and then suddenly flare up from time to time. These weren’t worries just a few months back. Now the market is all but being forced to price them in.
Unlike the latter part of 2020 and the bulk of 2021, steep sell-offs from Cisco, Boeing, and Walmart shares aren’t enough of a reason in and of themselves to dive in. Investors are still figuring out how to navigate an environment that can only be described as a stimulus hangover complicated by a pandemic that may never truly “go away.” While lower lows aren’t a foregone conclusion, it’s still uncomfortably possible that the market continues to see Cisco, Boeing, and Walmart shares in a bearish light. That’s not a chance worth taking when there are so many other, more promising prospects out there.
And it’s not just these three stocks, by the way. A whole slew of other names — including a bunch of blue chips — aren’t primed to bounce back from recent pullbacks just because they’ve done so in the recent past.
Bottom line? If you’re eyeing any beaten-down name right now, make sure you can cite at least one decisive, fundamental reason it deserves to move higher. Also, be sure there’s no good reason it could continue to move lower. You may find there aren’t actually a whole lot of these stocks to consider right now.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cisco Systems. The Motley Fool has a disclosure policy.
