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Is It Time To Buy the 5 Worst-Performing Blue-Chip Stocks of 2021?

By James Brumley – Dec 5, 2021 at 7:30AM

Key Points

  • Rising costs that are crimping corporate profits may not be as "transitory" as many investors believe.
  • Several stalwart companies have also allowed competitors to creep onto their turf.
  • Rekindled competitiveness and cost-containment measures could take years to establish.

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Bargains aren't bargains if there's not much hope for a strong rebound move.

If you're already hunting for bargains to carry into the new year with you, there are certainly some compelling prospects out there. Whereas the S&P 500 is on pace to end 2021 with a gain on the order of 22%, blue-chip stocks like AT&T (T 0.75%), Clorox (CLX 0.59%), and FedEx (FDX 0.46%) have managed to lose 22%, 18%, and 12% of their value, respectively, so far this year. These aren't the sorts of performances one would expect from the market's most iconic of outfits, particularly when the economy is bouncing back from the initial disruption of the COVID-19 pandemic.

Before you start spending indiscriminately though, you might want to take a step back and assess the bigger picture.

Businessperson watching a falling stock chart move out of sight.

Image source: Getty Images.

Mostly self-inflicted

Clorox, FedEx, and AT&T are in strangely good company, by the way. Walt Disney (DIS 1.35%) stock is down 21% year to date. Mastercard (MA 1.48%) stock is off to the tune of 14%. And that's just the list of household names that turned into big losers this year. Other slightly less-blue-chippy (but healthy companies all the same) tickers fell even more.

What gives?

There is no single answer. Disney shares arguably fell due to a heroic run-up last year that's unwinding now that investors realize that simply slapping the Disney label on a streaming service doesn't mean hordes of new customers will perpetually sign up for it. AT&T shares are on the defensive because shedding its WarnerMedia arm is a messy, costly business. FedEx shares have fallen largely due to disappointing post-pandemic growth paired with high fuel costs. MasterCard is finding it doesn't quite have the same name cache it used to, particularly with younger consumers opting for other kinds of payment middlemen. Clorox now knows it has to be innovative if it wants to maintain customer loyalty.

In short, all of this weakness from these blue-chip stocks makes sense.

And there's the rub, as well as the takeaway, for the bargain-hungry investors eyeing them: Simply being a blue chip is no longer enough of a reason to blindly buy them -- or any other blue chip -- whenever they peel back. These companies must still perform. Many of them just aren't doing that the way they used to.

This is perhaps even more true now than it was just a few months ago. Take FedEx, for instance. Earlier in the year, inflationary pressures pushing fuel prices higher were described as "transitory," meaning they wouldn't last long. More recently, Federal Reserve Chairman Jerome Powell has suggested discontinuing the use of the word to describe the global pricing dynamic, since it implies something a bit misleading. As it turns out, "transitory" was only meant to mean higher prices wouldn't leave a lasting scar on the economy and not that inflation would necessarily be short-lived. In the meantime, e-commerce giant Amazon (AMZN 1.07%) has confirmed it's on pace to become the biggest delivery service in the United States sometime in the coming year, displacing FedEx even more than it's already been displaced by Amazon's in-house logistics efforts.

AT&T is yet another example of a once-solid company unexpectedly souring. While dumping most of DirecTV and soon shedding WarnerMedia will get it fully out of the entertainment business it should have never gotten into in the first place, AT&T will emerge from all the dealmaking deeper in debt than it started it. The stock- and debt-financed $85 billion deal to acquire Time Warner back in 2018, for example, is now being unwound for about half that figure. AT&T can absorb the difference, but servicing relatively more debt now means the company may not be able to do other things it would like to do or needs to do.

Although perhaps not to the same degrees as AT&T and FedEx, the other big names already referenced here have walked into problems of their own that won't be easily or quickly shrugged off.

Take the hint

But how do these established companies -- outfits typically led by industry veterans -- get themselves into such tough situations in the first place?

The best answer is a philosophical one. That is, most of these organizations (and many of their peers) assumed that what worked as recently as 10 years ago will still work now. It won't.

There's also a bit of hubris in play.

Case(s) in point: Had AT&T taken a real assessment of the entertainment landscape six years ago before it acquired DirecTV, it might have noticed that the cable television business was and is still dying, regardless of how it's delivered. It might have also bought WarnerMedia with a clearer plan in mind; the studio is actually a good one. FedEx arguably should have realized a company the size of Amazon would eventually reach a large enough scale that the cultivation of its own delivery network was inevitable. Mastercard allowed PayPal to become the premier name in peer-to-peer payments. MasterCard could have outright acquired PayPal just five years back in a self-funding deal that would have cost it on the order of $50 billion. It instead allowed PayPal to double the number of annual transactions it handled in the meantime.

It's also worth mentioning these are the sorts of missteps seen in the latter parts of bull markets paired with economic growth cycles (like the one we've enjoyed for 12 years now). Corporations not only become complacent and misguided over time, but they also just run out of good ideas and growth prospects. It often takes an economic drubbing along with a bear market to proverbially hit this reset button.

And that's why you shouldn't necessarily be in any hurry to scoop up any and all blue-chip stocks here just because they've lost a bunch of ground since the end of 2020. We're in the "stock picker's" phase of the bull market, meaning each of your holdings should be chosen on a case-by-case basis on its merits rather than on its reputation alone. This year's weakness from a bunch of high-profile stalwarts may actually be the market's subtle way of telling you something along these lines.

Oh, and if you think blue chips offer any real protection from a marketwide sell-off that may well be overdue, think again. These tickers get hammered during pullbacks just like everything else.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. James Brumley owns shares of AT&T. The Motley Fool owns shares of and recommends Amazon, FedEx, Mastercard, PayPal Holdings, and Walt Disney. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long January 2022 $75 calls on PayPal Holdings, and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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