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Is It Time to Buy the S&P 500's 3 Worst-Performing September Stocks?

By Keith Noonan – Updated Oct 2, 2020 at 3:21PM

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Here's why the index's biggest losers shed roughly a quarter of their value last month.

Despite setting a new record high early in the month, the S&P 500 index ended September down roughly 3.9% due to ongoing concerns about the economic impact of the coronavirus and the lack of a new stimulus bill.

^SPX Chart

^SPX data by YCharts

Oil-services company Halliburton (HAL -0.55%), retailer Nordstrom (JWN 2.03%), and makeup and cosmetics company Coty (COTY -0.13%) came in as the index's worst-performing stocks last month, with each company seeing its share price decline somewhere in the range of 25% in the period.

Big slides raise the question: Should investors be buying these stocks up now that their respective prices are substantially lower? Before rushing to buy, let's take a look at the dynamics that weighed on the S&P 500's biggest losers last month.   

An arrow pointing down over a bar chart.

Image source: Getty Images.

Coty: Uncertainty surrounding a transformation effort

Coty stock has gotten crushed this year, with shares losing roughly 75% of their value year-to-date. With malls and department stores serving as key retailers for the company's products, high numbers of new coronavirus cases in many key markets last month weighed on the company's outlook. 

The company's stock started to slide at the end of August after the company delivered weaker-than-expected fourth-quarter results. The company's full-year sales declined 22% annually, and its fourth-quarter sales slumped 53% year-over-year. Continuing operations revenue (which backs out contributions from the to-be-divested part of the company's Wella hair coloring and product business in both periods of comparison) sank 60% year-over-year.

Coty stock actually saw a rebound early in September, which seemed to correspond with Sue Nabi taking over as the company's chief executive officer. However, the gains were short-lived, and shares slid amid turbulence in the broader market and concerns about the company's debt and transformation efforts. Coty is looking to sell 60% of its stake in Wella to investment company KKR, and also offer new shares to the buyer as part of a transaction that will reduce its debt levels and forge a closer partnership between the two companies.

Coty stock climbed roughly 5.6% in the first day of October's trading. The company is now valued at roughly $2.15 billion and trades at about 0.45 times this year's expected sales. 

Nordstrom: Coronavirus concerns are weighing on the retailer

It almost goes without saying that 2020 has been a very challenging year for brick-and-mortar retail. Nordstrom reported disappointing second-quarter results at the end of August, with sales falling roughly 53% year-over-year in the period and a net loss of $255 million. Weak sales performance was expected, as the company's stores were closed for roughly half the quarter, but even the company's digital sales sank roughly 5% compared to the prior-year period. 

Like Coty, Nordstrom has high debt levels. The debt situation looks worse in a recessionary economic environment, and signs that the retail space could face prolonged pressures weighed on the stock last month.

However, Cowen & Co. analyst Oliver Chen also published a note at the beginning of last month outlining a potential rebound case for the high-end department store, citing strong margins for its online retail segment and the potential for the business to outlast competitors and emerge into a more favorable operating environment. The analyst also pointed to the company's bargain-focused Nordstrom Rack stores as being well suited to more price-sensitive consumer preferences.

Nordstrom's stock climbed 5.7% on Oct. 1, but it's still down roughly 69% across this year's trading. The department store's shares have seen volatile trading all year, and last month's stock slide came on the heels of a 17% increase for the company's share price in August. The company is now valued at roughly 11 times this year's expected earnings, and less than 0.2 times expected sales.

Halliburton: Oil stocks aren't for the faint of heart

Halliburton stock climbed roughly 10% in July and 13% across August's trading on improving outlooks on the coronavirus and economic fronts, but it more than gave up those gains in September due to weakness in the oil market. With the coronavirus pandemic resulting in scaled-back business operations and reduced consumer travel, oil consumption has slumped, and that's impacted drilling and production demand and dampened Halliburton's outlook.

A rising wave of new coronavirus infections in Europe emerged in September, and crude oil futures sank early in the month -- dipping below $40 per barrel for the first time since July. Crude prices did get a boost mid-month as Hurricane Sally threatened production on the U.S. Gulf Coast, but global oversupply remained the prevailing market dynamic. Oil stocks are also facing pressure as investors weigh the long-term impact from the potential emergence of competing renewable energy technologies. 

Halliburton stock fell 7.3% on Oct. 1 on news that the Organization of the Petroleum Exporting Countries (OPEC) had increased exports of crude oil in September. Increased exports from OPEC add to pricing pressures in the oil market, particularly with weak demand. With oil prices hovering in the $40-per-barrel range -- which makes drilling unprofitable for many U.S. wells -- Halliburton faces challenging operating conditions. 

Halliburton shares have lost roughly 54% of their value this year, and set a fresh 52-week low last month. The company is valued at about 22 times this year's expected earnings and 0.7 times expected sales.

What's the right approach when big sell-offs hit?

Honing in on stocks that have recently suffered dramatic sell-offs can be a path to big gains, but that's typically only true if the underlying businesses are sturdy enough to overcome the pressures that are driving their stock declines. Investors have to assess beaten-down stocks on an individual basis, as just buying companies that have seen their share prices decline is a recipe for big losses over the long term. Comeback bets should be selected carefully -- and that's particularly true amid a weakened economy and volatile market conditions. 

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool recommends KKR. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Halliburton Stock Quote
Halliburton
HAL
$36.36 (-0.55%) $0.20
Nordstrom Stock Quote
Nordstrom
JWN
$22.13 (2.03%) $0.44
Coty (Class A) Stock Quote
Coty (Class A)
COTY
$7.58 (-0.13%) $0.01
KKR Stock Quote
KKR
KKR
$51.85 (-0.44%) $0.23

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