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Is It Time to Buy the Dow Jones' 3 Worst-Performing January Stocks?

By James Brumley - Feb 1, 2021 at 10:24AM

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For the first time in a long time, the pandemic isn't the only thing pushing stocks around.

If you're looking for a new blue-chip stock to buy, you might consider starting your search with the Dow Jones Industrial Average's 30 constituents. They're big, tenured companies that have been hand-picked to represent the market's very best. If the price for any of these stocks has recently pulled back, so much the better.

To this end, the stock price for Dow components Coca-Cola (KO -6.96%), Boeing (BA -4.95%), and Visa (V -1.97%) lost more ground than any other Dow stocks did in January, falling 9.2%, 8.7%, and 6.8%, respectively, last month.

But before blindly buying into all three of these stocks, take a moment to properly consider your purchase. The companies are all worthy of ownership, but each comes packed with its own unique pros and cons that investors should consider on a case-by-case basis. Let's take a closer look.

Man stopping a a red arrow from falling any farther.

Image source: Getty Images.

Dissecting the Dow's duds

More often than not the Dow's leaders and laggards are leading and lagging for a common reason. In November, for instance, Dow constituents Boeing, Walgreens, and Chevron all underperformed and the reason was ultimately attributed to negative economic effects from the pandemic. But that's not the case this time around.

For Coke, analysts did the damage. RBC analysts downgraded the stock on valuation concerns in early January following big gains in November and December. Analysts from Guggenheim and then Deutsche Bank piled on just a few days later with downgrades of their own. The former feels the beverage giant may be slow to come out of the coronavirus slowdown with its new franchisee-first model, while the latter is worried an unexpected tax liability could cost Coca-Cola at least $3.3 billion. JPMorgan Chase analysts downgraded Coke shortly thereafter, also citing the potential tax liability.

That's a lot of doubt being voiced in a short period of time.

Visa also ended 2020 on a high note, reaching a record high close on the last day of last year, topping off a 61% price rally from March's low. The stock wasn't run through a gauntlet of downgrades, though. The January price dropoff looks like profit-taking inspired by recent market-wide weakness. Indeed, the payments giant just reported its fiscal first-quarter numbers. Revenue fell 6% year over year, and net income slipped 4%. But transaction volume improved 5%, while sales and earnings both topped expectations. That beat, paired with another $8 billion worth of stock buybacks, initially sent the stock higher. The sellers soon dug in again, however, driving shares to a multi-week low on Friday of last week.

And Boeing? The weakness here is nothing new. Its troubled 737 MAX jet has been a drag on the stock's value since 2019. COVID-19 lockdowns merely exacerbated its problems in the meantime; airlines are postponing the purchase of new jets until it's clear those expenditures are merited. The stock perked up in November, but it lost altitude beginning in December. Shares are now trading 20% below their early December high.

Perhaps the market knew something. Boeing reported a full-year loss of $12 billion last week. Granted, Boeing sales only fell 24% year over year in 2020 in an unprecedented environment. There's also evidence the company is headed for sunnier, less turbulent skies. The 737 MAX, for instance, has been cleared to fly in Europe. Morgan Stanley analyst Kristine Liwag even called it a "COVID-19 recovery play," noting 5,400 of the airline industry's jets are now more than 15 years old. Investors aren't yet boarding.

To buy, or not to buy?

Not every dip is necessarily a buying opportunity.

For Coca-Cola, the sell-off makes for a compelling entry point. Last week's downgrades were reasonably rationalized, but largely shortsighted. Coke is a habitual winner. While revenue may be waning in the wake of the company's offloading of its bottling operations, that's a move ultimately leading to higher margins and greater profits. Simultaneously, Deutsche Bank -- the same Deutsche Bank that downgraded Coke a month ago -- now suggests the tax worries currently plaguing the stock may be overblown. Newcomers will also be plugging in while the dividend yield is a healthy 3.3%.

Visa is also off its recent record highs for all the wrong reasons. Although it was adversely impacted by the pandemic, analysts are modeling 7% revenue growth this year to be followed by top-line growth of 17% in 2022. Earnings are expected to grow similarly. Given that the company topped last quarter's expectations, these longer-term outlooks may also underestimate how well Visa will capitalize on a post-pandemic recovery.

The only less-than-compelling pick among the three Dow Jones stocks in question is Boeing.

Sure, a handful of airlines are starting to show some interest in the 737 MAX again, and Morgan Stanley's aging-fleet logic holds water. What's not fully appreciated here, however, is the length of time it could take Boeing to rebound. It won't be measured in months. It will be measured in years. Investors have plenty of other more proven and faster-moving opportunities to tap into at this time.

There's a bigger takeaway for investors than a mere review of three different blue chips' situations, though. That is, for the first time in a long time stocks are rising and falling on their own merits rather than with respect to how the pandemic is impacting them. All investors should stop looking through the COVID-19 lens and start weighing companies on their actual long-term potential. That's a nice change in itself.

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Stocks Mentioned

The Boeing Company Stock Quote
The Boeing Company
$125.52 (-4.95%) $-6.53
The Coca-Cola Company Stock Quote
The Coca-Cola Company
$61.20 (-6.96%) $-4.58
Visa Inc. Stock Quote
Visa Inc.
$199.99 (-1.97%) $-4.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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