Why Visa, AT&T, and Verizon Communications Were the Dow's Big Losers Last Week

The Dow gave up its gains early in the week, but these stocks struggled much more than the broader market. Find out why.

Apr 26, 2014 at 5:05PM
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The Dow Jones Industrials (DJINDICES:^DJI) looked like they'd have another winning week until Friday, when triple-digit losses pushed the Dow to a small decline for the week. Earnings were an important part of the Dow's moves in both directions this week, and all three of the Dow's worst performers -- Visa (NYSE:V), AT&T (NYSE:T), and Verizon Communications (NYSE:VZ) -- has earnings-related issues that pushed them downward.

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Visa's 4.3% drop for the week came entirely on Friday, after the credit card giant announced its earnings report Thursday night. When Visa became part of the Dow Jones Industrials last year, many investors applauded the fact that the card-network company had such rapid growth rates compared to the companies that were being taken out of the Dow. But Visa's high growth set high expectations among shareholders, and now, Visa's reduction in its revenue-growth guidance for the remainder of the fiscal year has investors worried. Before adjusting for currency impacts, Visa's revenue climbed by only 7% year-over-year, and even 10% to 11% revenue growth guidance wasn't enough to make investors feel more secure. Those with a long-term mind-set, though, should understand that despite Visa's risks, the opportunities to cover even more of the world with its payment services mean that Visa has plenty of chances to grow in the future.

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Meanwhile, the more than 4% decline in AT&T and the 3.5% drop in Verizon are obviously related to each other, as both telecom companies share many of the same challenges. For years, both companies have had a virtual duopoly in the U.S. wireless market, with smaller also-ran carriers essentially posing little or no competitive threat to their ability to set high prices and reap big profit margins. Yet with smaller wireless providers finally getting their competitive acts together and offering viable alternatives in the data-plan arena, both Verizon and AT&T have had to consider appropriate responses. So far, AT&T has taken the more active role, firing back with new plans of its own. Verizon, on the other hand, has taken more of a wait-and-see approach, making selected moves in order to retain customers but not making it a cornerstone of its overall strategy. Neither strategy is perfect, though, and if Verizon and AT&T aren't careful, a devastating price war could crush both of their stocks, eventually leading to the need for dividend cuts and even more dire consequences in the long run.

The declines in Visa and the Dow's telecom stocks don't mean that the bull market is doomed to an imminent end. But as earnings season continues, it's important to watch stocks closely to see if slowing growth will eventually erode investor confidence and lead to long downtrends in share prices.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Visa. 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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