Why These Were the 3 Worst Dow Stocks This Week

It was another strong week for the stock market, with the Dow Jones Industrial Average (INDEX: ^DJI  ) rising a solid 1.1%. But not every stock got to enjoy the rally. These were the three biggest losers:

Company

Weekly Price Change

Kraft (NYSE: KFT  ) (1.5%)
Alcoa (NYSE: AA  ) (1.4%)
Bank of America (NYSE: BAC  ) (0.6%)

Part of the answer to why Kraft took a big hit has to do with its valuation. Over the course of the current economic downturn, and particularly as traders panicked in late 2011 over the possibility that Europe would come apart at its seams, as well as concerns over a double-dip recession, the tendency has been to tilt portfolio allocations to defensive blue chips. Now that the economy is showing signs of life once more, the pendulum has been swinging back in the other direction. Trading at nearly 21 times earnings -- versus a Dow median of 16 times -- Kraft is among the most expensive stocks in the Dow on a P/E basis, even though it's not exactly a part of the fastest growing sector (earnings grew at an annual rate of 4% over the past half-decade).

After racing ahead at the start of 2012, Alcoa and Bank of America are cooling off a bit. Alcoa is continuing its downward slide; it was last week's worst-performing Dow stock, on a slew of negative news from a Reuters report over aluminum demand, to a Rio Tinto writedown of aluminum production assets, to reports that traders had closed out their bullish bets on the metal.

Although all's well once it (eventually) ends well, this week saw a continuation of last week's drama over the next stage in Greece's bailout, only this time it was European financial leaders who were balking. We also got to see Moody's (NYSE: MCO  ) warn that it's thinking about downgrading basically every major bank on the planet in response to newfound recognition of their leverage and opacity. And yesterday the bank granted its CEO $6 million in restricted stock, while reports suggested that more layoffs could be coming next month.

Kraft, Alcoa, and Bank of America all lost to the market this week, but it's important to remember that what happens to the market on a day-to-day or even week-to-week basis doesn't matter nearly as much as how our stocks perform over the long run. If you're interested in one stock that our chief investment officer picked to crush the market, check out our brand-new report, "The Motley Fool's Top Stock for 2012." It highlights a company that is revolutionizing commerce in Latin America. For a limited time, you can get instant access to the name of this company for free

Ilan Moscovitz doesn't own shares of any company mentioned. The Motley Fool owns shares of Bank of America. Motley Fool newsletter services have recommended buying shares of Moody's. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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