Last Week's Biggest Dow Losers

An in-depth look at what caused a few stocks to fall.

Feb 15, 2014 at 5:00PM

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.

After the economic data-filled week we saw in the first week of February, this past week was much quieter on most levels. Despite any major catalysts, the three major U.S. indexes all finished the week in the black, and by a healthy amount. The Dow Jones Industrial Average (DJINDICES:^DJI) gained 360 points, or 2.28%, while the S&P 500 rose more than 41 points, or 2.31%, and the Nasdaq increased 118 points, or 2.86%.

Arguably the most important, and best, economic news this past week was the Thomson Reuters/University of Michigan consumer sentiment report, which was expected to hit 80.6 for the month but came in at an 81.2. That's exactly the reading researchers got in January, which means that while things may not seem to be getting better, at least they aren't getting any worse.

Before we get to the Dow's biggest losers of the week, let's look at its top performer. For the second week in a row, Walt Disney (NYSE:DIS) led the pack, finishing the week up 4.7%, following a 4.21% bump last week. Two weeks ago, the company moved higher after revenue from its animated Frozen movie had reportedly hit $870 million worldwide. Disney's unbelievable ability to leverage that movie's strength into a number of revenue streams -- such as merchandise, new theme-park attractions, and perhaps a TV show -- is what sets it apart from the competition. That's why Disney could still climb this week even after the big news that Comcast is buying Time Warner Cable. Disney is such a great content provider, both online and on TV, that the creation of a massive new cable company should have no effect on it. The House of Mouse has the leverage and power to not only dictate what it wants, but how much it's willing to pay. That's something every shareholder should love.

Last week's big losers
The Dow had only three losers this week. First up is McDonald's (NYSE:MCD), which fell 0.14%, enough to make it the third worst performer. The company released same-store sales figures that showed a 1.2% increase for January, but it also indicated weakness in the U.S. market. McDonald's has been pushing menu items out too fast, and now those problems may be hurting sales, as customers complain about the speed of the ordering and food delivery process. The weak U.S. figures aren't a new trend, either, as customer numbers declined 1.6% over the course of 2013. The company needs to make some serious adjustments if it wants to stem this problem and it needs to happen soon, since the size of the company dictates that any rollout will take time -- from months to even years.  

Next up is the Dow's second worst performer, Cisco (NASDAQ:CSCO), down 0.48%. Cisco's earnings report this past week showed revenue dropping 8%, which beat projections from analysts and the company itself -- but the 55% decline in net income really hurt. Earnings per share, meanwhile, beat estimates but were lower on a year-over-year basis. Management blamed the declining sales and earnings on weakening emerging markets.  

Finally, the worst Dow stock of the week was Verizon (NYSE:VZ), down 0.64% a week after competitor AT&T fell more than 3%. Rate cuts were the culprit in both cases. T-Mobile started the price wars a few weeks ago, when it cut rates on family plans and launched an ad campaign to lure customers away from the No. 1 and No. 2 U.S. service providers. AT&T jumped in two weeks ago, and this week it was Verizon's turn. Price cuts stand to hurt sales, margins, and earnings, and this price war may just be starting. Investors don't need to panic yet, but they do need to keep an eye on further developments and see how the price cuts affect the companies' numbers. If trends continue, there may come a time for investors to change their valuation models and growth prospects for these companies.

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Matt Thalman owns shares of Walt Disney. The Motley Fool recommends Amazon.com, Cisco Systems, McDonald's, and Walt Disney and owns shares of Amazon.com, McDonald's and Walt Disney. 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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