Should You Sell These Plunging Stocks Before It's Too Late?

Three stocks in the Dow fell more than 10% in January. Is it time to buy or get out?

Feb 2, 2014 at 9:02AM

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

The Dow Jones Industrials (DJINDICES:^DJI) got crushed in January, falling more than 5% and setting the stage for what could be the stock market's first down year since 2008. But what's especially disturbing is the fact that three stocks -- Chevron (NYSE:CVX), General Electric (NYSE:GE), and Travelers (NYSE:TRV) -- fell more than 10% during the first month of 2014. Should you get out of these stocks to avoid further losses, or is now the buying opportunity that many investors have waited for?

One disturbing thing about the Dow's worst-performing stocks is that they're not concentrated in a particular area of the economy. Chevron's losses have largely come from the challenges that the entire big-oil complex has had in maintaining extremely impressive production growth rates in recent years from the shale oil and gas boom. With energy prices having failed to keep climbing from their fairly lofty levels, Chevron hasn't been able to overcome trends toward falling production in order to maintain overall revenue levels.

On the other hand, many see General Electric's losses as having come not from fundamental problems with its business but rather from disappointed Wall Street analysts. Even though GE has become an industrial innovator with aggressive moves into promising niches like energy infrastructure, investors seem to believe that the stock has come too far in its impressive recovery from the financial crisis five years ago. Similarly, Travelers has had great quarters as a result of having favorable loss experience recently, as a lack of any substantial hurricane activity last year gave investors a respite from losses in past years. Yet investors chose to emphasize headwinds from potentially rising interest rates in the future in pushing the stock down so much.

Value traps?
The other problematic aspect of the Dow stocks that fell the most in January is that at least in two cases, the culprits have some of the lowest earnings multiples in the average. Both Chevron and Travelers trade at around 10 times earnings. That makes them attractive to those who don't want to pay the much higher P/E ratios that most higher-growth stocks in the Dow fetch currently.

Many bull markets reach points at which investors give up on slower-growth companies in favor of the momentum stocks that perform the best in rising markets. That might well be happening here, as investors start to shift their portfolios toward some cyclical stocks that were beaten down throughout 2013.

But the other thing to look at is whether current earnings levels are sustainable. Investors believe that Chevron and Travelers will see their earnings fall this year compared with 2013. If that proves to be the case and the market has a challenging year overall, then it could put even more pressure on these particular stocks.

When markets fall, it's smart to look at the worst performers to see if you can figure out whether problems are isolated to certain types of companies or are more widespread. In this case, the breadth of the downturn points to greater reason for general concern. For investors who hold stocks for years rather than weeks, though, more attractive share prices are an unquestionable positive.

Why you should want stocks to fall
If you want to buy stocks, then you should look forward to more corrections like what we saw in January. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal-finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.

Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool recommends Chevron and owns shares of General Electric. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers