It's been a tough year for most stocks, but 2022's been downright awful for a few names. Not even the blue-chip-laden Dow Jones Industrial Average has been able to stand up to the headwind, down about 10.4% year to date, with a handful of its constituents dishing out much worse performances.
Of course, veteran investors know these steep setbacks can be buying opportunities. A sell-off, however, isn't inherently an opportunity to jump in at a good price. A stock's only worth buying if there's a better-than-average chance it's going to move higher again at some point in the foreseeable future.
And there's the current rub. The Dow's absolute worst performers of 2022 are all familiar names that will be around years, if not decades, from now. But, it's not clear if now's the time to choose these tickers over other options.
Worst of the worst for a reason
Cutting straight to the chase, the Dow Jones Industrial Average's 2022 laggards are Nike (NKE -0.11%), Salesforce.com (CRM -0.68%), and Boeing (BA -0.32%), down 36%, 38%, and 41%, respectively, since the end of last year.
The reasons for these big pullbacks aren't difficult to pinpoint. Nike's been plagued by supply chain woes that first took shape thanks to COVID-19-related shutdowns. Russia's invasion of Ukraine and soaring inflation aren't helping. Salesforce is doing well, although not quite well enough to justify the stock's rich valuation achieved at the height of the pandemic, when working from home was the norm. As for Boeing, it's struggled to shrug off its reputational dent stemming from the 737 MAX's design flaws.
Still, nothing lasts forever -- not even sell-offs. Are all (or any) of these three Dow names nearer a bottom than not and too cheap to pass up now? The problem with the question is its premise. Namely, the question assumes bigger pullbacks make for better buys. They don't.
Don't misunderstand. A company worth owning is an even better addition to your portfolio when the stock is "on sale." A stock that's on sale, however, isn't necessarily a name worth owning. Regardless of the size of a sell-off, a prospective addition to any portfolio should first and foremost be founded on the company's long-term prospects. If they don't look good, the scope of the underlying stock's drop is irrelevant.
Translation: Don't be in too much of a hurry to step into Boeing, Salesforce, or Nike unless you can cite a specific reason each of these companies -- and each of these stocks -- are past their respective storms. A bunch of people buying these stocks at their current rock-bottom prices can't supply such a reason.
As always, you get what you pay for
None of this is to suggest this trio of companies is doomed, or that their stocks' sell-offs aren't overdone. As noted, these are Dow Jones names. Even if they don't remain in the Dow, they've earned the right to be a part of the iconic index, at least for a short while. That's a good sign they're built to last. And it's certainly possible any or all three of these stocks are ready to rebound right now. Newcomers may well do well by stepping in sooner than later.
That's not really investing, though. That's more akin to luck. And, if you count on luck often enough, eventually your luck runs out, and you get burned.
While not nearly as much fun, the alternative is a much more reliable approach to stock picking. That is, look for companies that will not only survive the next five years but can thrive over the course of the next five years. Be sure to weigh the likely impact of rising interest rates and inflation as well, as those factors don't look like they'll be easing anytime soon.
If that list happens to include Boeing, Nike, and Salesforce, so be it. Given how the problems Boeing, Nike, and Salesforce's stocks currently face could linger for years and are only exacerbated by rising rates, it's not likely any of these stocks are at the very top of your pick list despite their fire-sale prices. Sometimes you just have to pay a little more for quality.
Or think about it like this: The investor crowd may be trying to tell you something by shedding these three Dow stocks more than any others. Take the hint.