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Is It Time to Buy the Dow's 3 Worst-Performing September Stocks?

By James Brumley – Oct 6, 2021 at 7:45AM

Key Points

  • A handful of high-quality stocks are logging pullbacks, mostly as a reaction to sizable rallies earlier this year.
  • Inflationary pressure is up, but cost increases tend to abate or get passed along to customers.
  • A sheer lack of supplies leading to inventory shortages is poised to be a lingering problem.

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Pullbacks make stocks less expensive, but that doesn't inherently make them worth owning.

Most investors understand the theory behind a good stock being an even better opportunity when its price is lowered. However, a lower price doesn't necessarily make a stock a good pick; if it's not worth owning, it's not worth owning at any price. That's true even among the blue chips that make up the Dow Jones Industrial Average (^DJI -1.40%).

If you don't know enough about a particular Dow stock to make a buy/avoid decision, a sizable pullback can offer a good reason to take a closer look. Doing so might just find you a great stock that has briefly gone on sale.

With that in mind, September's worst-performing names of the Dow Jones Industrial Average were Nike (NKE -2.30%), 3M (MMM -1.86%), and Goldman Sachs (GS -2.38%), down in price 11.9%, 9.1%, and 8.2%, respectively. Here's a closer look at all three stocks, what went wrong, and whether or not the pullback is a buying opportunity.

A signpost pointing in the directions of buy, sell, and hold.

Image source: Getty Images.

Why they were upended

If you're looking for a specific reason Goldman Sachs shares pulled back in a big way in September, good luck: You're probably not going to find much. The company announced in the middle of last month that CFO Stephen Scherr is stepping down, to be replaced by the co-head of its Global Financing Group, Denis Coleman. But that shouldn't have been enough to rattle investors. Neither is the $2.2 billion acquisition of lender GreenSky (GSKY), which beefs up Goldman's exposure to retail consumers with a company that specializes in home improvement loans.

Rather, the bulk of Goldman Sachs' pullback can arguably be attributed to what happened between November of last year and the end of August. During this period, Goldman's share prices rallied an incredible 125%, although the effort had clearly been slowing since June as investors increasingly second-guess the scope of the gains.

As for 3M's pullback, much of it was prompted by a poor market environment, although some of it can also be chalked up to one specific reason. Speaking at an investor conference, CFO Monish Patolawala confirmed what many investors had been increasingly suspecting: Inflationary pressures are very real, and will adversely impact the company's third-quarter results.

Last month's biggest rout of Dow Jones names was dished out to Nike. The athletic apparel brand's stock price tumbled nearly 12%, extending a sell-off that first took shape in early August. Chalk it up to bad news. Although last quarter's sales were up 16% year over year, they also fell short of estimates. Perhaps worse, Nike lowered its full-year revenue forecast from double-digit percentage growth to only a single-digit pace, citing supply chain challenges.

But the timing of the Nike news doesn't quite make sense. That news only materialized a little over a week ago, while Nike shares have been in a slump for two months. The most plausible explanation is that seeing other companies already running into supply chain hurdles, Nike shareholders sensed such a disappointing development was due. Fanning the bearish flames is the fact that, like Goldman Sachs, Nike shares were well overbought just a couple of months ago, leaving them ripe for profit-taking.

To buy, or not to buy?

For the record, although they're last month's biggest losers, all three aforementioned companies would make fine long-term stocks in your portfolio. If you happen to own one or more of them and don't want to let go of them just yet, that's OK. Likewise, if you're inclined to step into any of them, that's fine, too. You could absolutely do worse.

As is typically the case, though, picky investors will want to consider an immediate purchase of all three of these options on a case-by-case basis.

For the time being, take a pass on Nike. It's still the big, dominant name in athletic wear, but there's no real clarity as to when its supply chain could be repaired. The market typically doesn't reward uncertainty,

3M, on the other hand, is a compelling pickup here for true long termers and income seekers. The dividend yield now stands at a healthy 3.4%, and though inflation is a concern, it's not a permanent one. Either it will abate, or the company will find a way to pass those added costs along to its customers. Just don't nibble unless you're sure you're ready to make a long-term commitment.

And Goldman Sachs? Go ahead and pull the trigger. While it's not the head-turning name it once was, the bargain is just too good to pass up with the stock priced at only 7 times this year's projected earnings and about 10 times next year's per-share earnings estimates. The recent sell-off makes sense in light of the huge rally leading up to last month's sell-off. The thing is, that big gain was only an effort to right-price the stock after a needlessly lackluster performance in 2020. The underlying results-driven value never really went away.

James Brumley has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Nike. The Motley Fool recommends 3M. The Motley Fool has a disclosure policy.

Stocks Mentioned

Goldman Sachs Group Stock Quote
Goldman Sachs Group
GS
$371.54 (-2.38%) $-9.04
3m Stock Quote
3m
MMM
$124.63 (-1.86%) $-2.36
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$33,947.10 (-1.40%) $-482.78
Nike Stock Quote
Nike
NKE
$109.62 (-2.30%) $-2.58
GreenSky, Inc. Stock Quote
GreenSky, Inc.
GSKY

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

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