The components of the Dow Jones Industrial Average (^DJI -1.72%) may all be blue chips, but not all of them dished out blue-chip-like performances in 2021.
Take Walt Disney (DIS -2.25%) for example. It lost a hefty 14% last year, and is lower to the tune of 13% just since the end of 2021. Dow component Boeing (BA -2.62%) has also started the current year on the same bearish foot it ended the previous year on, lower by 6% year-to-date after 2021's setback of the same amount. Verizon (VZ -1.01%) hasn't budged from last year's loss of more than 11%. Ditto for Amgen (AMGN -1.62%) following its slight 2021 loss of around 2%. Merck (MRK 1.89%) has drifted a little higher following last year's dip of more than 6%, but remains in the red relative to 2020's closing price. For perspective on how poor those performances really are, the Dow Jones industrial Average itself rallied nearly 19% in 2021.
Savvy investors are looking at these lower prices as buying opportunities, and that's natural. After all, why pay full price for a good stock when you can buy it on sale?
However, before jumping into any of these stocks just because they've sold off steeply, take a pause. There's always more to the story. Sometimes, if a stock has delivered a historically poor performance, that may reflect future headaches for the company.
The Dow's biggest losers of 2021
The graphic below tells the tale succinctly. With the exception of Boeing, all of the aforementioned stocks spent the bulk of last year on the defensive. And, in retrospect, Boeing's strong start out of the gate only set up a bigger pullback from its March peak. None of these names were able to plug into the market's broad bullish tide.
It's an awful lot of red attached to some of the market's blue chippiest names. Ergo, it's not crazy to wonder if rebounds are already in the works.
Bounces from these beaten-down aren't a foregone conclusion, though. These pullbacks may well be the market's way of issuing warnings.
Take Verizon as an example. The telecom giant recently reported fourth-quarter revenue that topped estimates, but overall revenue declined by 1.8% year over year -- despite a net addition of 582,000 wireless connections. Notably, the stock didn't respond to the relatively good news, though it came in tandem with encouraging guidance for revenue growth of 3% in 2022. The market's still waiting for more certainty about how Verizon's 5G efforts will pay off, and clarity as to how it intends to gain ground in the competitive North American wireless market.
Image source: Getty Images.
Disney is another Dow component with a fuzzy future. While it remains the undisputed king of entertainment, it is at something of a crossroads. Disney restructured itself in October 2020 to prioritize its flagship streaming platform, Disney+. But subscriber growth for Disney+ has slowed sharply from its initial torrid pace. Allthough management previously said it expected to have 230 million to 260 million subscriptions for the streaming service by 2024, Disney+ only added 2.1 million net new customers last quarter to bring its total subscriber count to 118.1 million. The company acknowledges it will need more content for the service to attract more paying customers and has even budgeted $33 billion for the cause this year alone, though that includes spending for content on its other platforms, too. In that the audience for streaming is a moving target and there's no guarantee that spending will translate into the hoped-for subscriber growth, investors are understandably cautious.
The moral of the story is that there's always more to the story
This is not to suggest that every sold-off stock should be shunned. Sometimes the market makes a mistake, dragging a stock lower that doesn't deserve it. For instance, Amgen shares are priced at only 12.5 times management's very achievable profit guidance of $17.92 per share, up 6% from 2021's bottom line on comparable revenue growth. The drugmaker's portfolio boasts 25 different pharmaceuticals, and it has a few dozen clinical trials currently underway. The company's going to be fine, and given enough time, its stock will be too. Last year's weakness is indeed a buying opportunity, but it's not a buying opportunity merely because Amgen performed poorly in a particular calendar year. It was a buy in November too, just as it's a buy now.
Meanwhile, Disney and Verizon are still surrounded by too many unanswered questions despite their relative values created by last year's weakness.
The point is, just because a stock has crashed isn't a good enough reason to buy it -- even when it's a blue chip Dow name. Stock-picking was, is, and always will be a case-by-case affair, as there's always more to the story than a stock's short-term performance.
