All in all, it's been a pretty good year for blue-chips. Between the end of 2020 and the end of November, the Dow Jones Industrial Average (^DJI 0.40%) climbed an impressive 12.7%. That's a better-than-average year, assuming it holds.
Not every Dow name has been so impressive, though. Index constituents Amgen (AMGN 0.22%), Verizon (VZ 1.17%), and Walt Disney (DIS -0.04%) have respectively lost 13.5%, 14.4%, and a hefty 20% of their value so far this year despite the rising tide.
Image source: Getty Images.
Veteran investors can attest that the time to buy good stocks is when they've been beaten down. The question is: Are these three beaten-down blue-chip stocks actually "good?"
What went wrong
It's a curious batch of laggards. Sure, all stocks ebb and flow. Of the Dow's components that you'd expect to lag the other names that make up the index, though, these typically aren't the names you'd expect. Take Disney, for instance. The ruler of entertainment media has always been able to leverage its brand name as well as its popular ESPN channel, and more recently it has attracted a huge crowd to its Disney+ streaming platform.
When you take a step back and look at the bigger picture, though, the pullbacks make at least a modicum of sense. Again, take Disney as an example. It's been weak this year, but it was up nearly 26% in calendar 2020, and it rallied an incredible 111% from its early 2020 low thanks to being an important player in the at-home-entertainment arena.
DIS data by YCharts
Amgen's weakness largely reflects little to no sales or earnings growth, although at least some of that can be chalked up to sheer logistics challenges linked to the COVID-19 pandemic. (As it turns out, people visit the doctor less when they're afraid of contracting the coronavirus.)
And as for Verizon, much of this year's poor performance is the result of rising interest rates; the price of dividend-paying stocks moves lower to adjust those stocks' yields accordingly. The rest of Verizon shares' weakness this year can be attributed to the slower-than-expected rollout and adoption of 5G, although that too may also ultimately be due to pandemic-prompted headaches.
What's still going right
Regardless, investing is -- as it should be -- a forward-looking endeavor. That is to say, you own a stock for where the company is going and not for where it's been.
With this as the backdrop, where are Amgen, Walt Disney, and Verizon going, and does the intended trip merit the risk of stepping into any of these three names (each of which still appears to be in decline)?
As always, it depends. In all three cases, though, comparing each stock's relative risk to its relative reward at its current valuation suggests all three of these Dow names are indeed buy-worthy at their current prices.
The prospect of more interest rate increases is very real. The Federal Reserve is anticipating between six and eight quarter-point hikes of the federal funds rate between now and the end of 2024, each of which theoretically works against the value of dividend stocks like Verizon.
Largely being ignored by the market, however, is that shares of an incredibly consistent Verizon are now priced at less than 10 times this year's as well as next year's projected per-share earnings. That's unusual even with the current dividend/interest rate dynamic.
It also doesn't hurt the bullish argument that 2022 may be the year Verizon's 5G capabilities truly start to matter to would-be users. That's when it will be able to fully utilize C-band/mid-band spectrum that's better suited for the tech, graduating from the use of lower-band spectrum that powers most of its 4G service.
While the past couple of years have been fiscally stifled for Amgen, the slow wind-down of the COVID-19 contagion should allow the company to rekindle its growth. That's what analysts think, anyway. After a couple of lackluster years, they're modeling an acceleration of its top-line growth to 4.1% next year, along with earnings growth of just under 7%. That doesn't seem like a lot, and by growth-stock standards, it isn't. For a big, well-established, and highly diversified outfit like Amgen, though, that's more or less back to its respectable growth pace seen before the coronavirus disrupted everything.
And as for Walt Disney, last quarter's clear slowdown in streaming subscriber growth rattled investors. The company only added 2.1 million customers to its Disney+ roster, missing expectations by a wide margin. Disney also quietly conceded in its most recent quarterly filing with the SEC that its sports-oriented cable channel ESPN lost another 8 million viewers during the 12-month stretch ending in September.
What's being mostly overlooked, however, is that the media giant is building something bigger and better, but longer-term. ESPN+ now boasts more than 17 million paying customers versus 76 million ESPN viewers still watching the channel via conventional cable.
That's not yet enough confirmed interest to prompt Walt Disney from pulling ESPN itself from the cable industry's mix to make a stand-alone, direct-to-consumer service, but it does point to the potential of an idea along those lines. Meanwhile, the company has a bunch of Marvel and Star Wars franchise programs in the works for Disney+ for the next few years that should reignite interest and user growth.
Keep the bigger picture in mind
Don't misread the message. Although these names are the Dow's biggest losers year-to-date, that doesn't inherently mean each of these picks is currently at an exact low. It's still possible any or all of them could move even lower.
All the same, trying to pick a stock's exact low point often comes at a bigger cost than simply stepping in when you know it's broadly undervalued. Each of these names is just that right now, making them all the more worthy prospects for true long-term investors.
