The Bull Market's 3 Worst Dow Stocks

It's been 10 years since the bull market began, and many stocks have seen huge gains over that timeframe. Given how much fear there was back in 2009, following the financial crisis and the plunge in the markets, it's been amazing to see the Dow Jones Industrials (^DJI 0.40%) bounce back so sharply from the stock market's swoon and climb back to record highs over the past several years.

Yet not every stock in the Dow has done a good job of pulling its weight during the bull market. Some former components, like General Electric and General Motors, have been removed from the average in part because of their poor performance. Yet even among those stocks that have survived the past 10 years and remain in the Dow today, ExxonMobil (XOM -2.78%), IBM (IBM -1.05%), and Walmart (WMT -0.08%) have badly lagged behind most of their peers within the average.

Data source: S&P Global Market Intelligence.

An unfair starting point?

It's telling that the three poorest performers over the past 10 years among current Dow stocks all come from different industries. Energy has certainly seen its ups and downs during the 2010s, and the retail industry has faced huge challenges from the transformative impact of e-commerce expansion. Tech stocks have done quite well in general, but rising competition has created its own winners and losers, and even some of the biggest companies in the business have found it difficult to keep up with the fast pace of change.

Image source: ExxonMobil.

Yet it's also not quite fair to punish these stocks for their sluggish bull market performance, because they treated their shareholders relatively well during the market meltdown in 2008. The Dow was down 34% that year, but IBM managed to lose only 21%, and ExxonMobil was down just 15%. Walmart actually jumped 20% in 2008, making it especially difficult to keep climbing in future years. By contrast, other stocks that didn't make this list saw bigger rebounds precisely because they had fallen further during the crisis.

Check out the latest earnings call transcript for ExxonMobil, IBM, and Walmart.

Current challenges

Even if lagging stock prices don't tell the whole story, these companies all do still face substantial obstacles. For ExxonMobil, the culprit has been weak energy markets, with crude oil prices having stubbornly remained below their triple-digit highs from early in the decade. Even with the market environment having improved recently, crude still goes for less than $60 per barrel. That limits not only the profits that the energy giant can generate but also the profitable opportunities it can exploit for further expansion. That in turn has led investors to be pessimistic about the stock, sending it recently to its lowest valuation since the 1980s.

Of these three stocks, IBM's prospects are perhaps the most in flux at the moment. Big Blue has had a long stretch of difficult conditions, as moves to emphasize higher-growth areas like cloud computing and data analytics haven't picked up steam as quickly as many had hoped. After years of efforts that have had mixed results, IBM made the more aggressive decision to acquire cloud specialist Red Hat to bolster its own organic efforts in artificial intelligence and analytics. Yet IBM's legacy business has weighed on its overall results, and expectations for flat earnings on an adjusted basis in 2019 compared to 2018 levels shows that the tech giant hasn't quite figured out a winning game plan.

Walmart, by contrast, looks like the strongest candidate here. The fact that the retailer did so well in 2018 means that it never had to rebound from anything, and even though its stock treaded water throughout part of the 2010s as investors wrestled with the implications of e-commerce, Walmart didn't hold back from making aggressive investments in building up its own online sales channel. Rather than letting competitors muscle it out, Walmart fought back, and the results so far have been outstanding. Alone among these stocks, Walmart's shares are near all-time highs, and the big-box department store giant looks more promising than ever.

Will these stocks do better?

With some thinking that time is running out on the 10-year-old bull market, it could be hard for the Dow to keep climbing. But these stocks have proven their resiliency in tough markets before, and it's entirely possible that future efforts could bring Walmart, IBM, and ExxonMobil back into the Dow's good graces.