The 136-year history of the Dow Jones Industrial Average shows that an investor could do quite well for himself just buying the 30 component stocks and hanging on. Even as companies have come and gone from the index over the years, average returns through recessions, depressions, war, and other domestic or global events have consistently been about 10% annually.
Sure, you will rarely ever get those exact returns, as they will generally be either higher or lower than the average each year, but that just proves the value of a buy-and-hold investing strategy. Buy the index and then pretty much forget you have it (well, always regularly add new money to your portfolio) and you, too, can generate transformational wealth.
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That's a good strategy for a great many investors, but if you want to improve your chances of higher returns, you can do better buying individual stocks, including those that comprise the second-oldest stock index on the market. (The Dow Jones Transportation Average is the oldest, created two years before the DJIA.) These are the bluest of blue-chip stocks, as they are some of the biggest companies in the world, with long track records of success.
But sometimes even Dow stocks can turn into "dead money" that could have been better spent on others with a much better chance of bouncing back quickly. Let's look at the three worst performers on the Dow so far this year and see whether any of them might be worth buying now.
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Cisco Systems, down 28.6%
After climbing to its highest level in more than 20 years this past December, Cisco Systems (CSCO 0.33%) stock has been on a long, slow slide and is down almost 30% year to date.
The downturn began as a result of the transition away from tech stocks and into more defensive plays, a rotation that caused the entire sector to fall. Yet the sharpest part of Cisco's decline occurred just a few weeks ago, after the company reported fiscal third-quarter results.
The computer networking technology giant missed analyst revenue expectations and warned of further potential shortfalls resulting from continuing COVID lockdowns in China that are exacerbating supply chain issues. That's preventing Cisco from obtaining timely critical power supply components, inventory that's not likely to be received anytime soon even if lockdowns are lifted, as there will be a crush of demand for parts.
Although Cisco has bounced off its recent lows, there's a good chance it could revisit them in the future as Shanghai is under lock and key once again because of new COVID outbreaks. Even so, more businesses are moving online and the need for Cisco's equipment will only grow, because it isn't the only equipment provider experiencing delays. At 15 times trailing earnings and 12 times next year's estimates. Cisco Systems looks like a good long-term buy even if you don't catch the precise bottom.
Image source: Disney.
Disney, down 29.8%
Disney's (DIS 1.25%) problems extend back beyond any current crises, and shares are off more than 45% from the all-time high hit in March 2021. While hopes for the reopened economy had Disney's stock soaring to nearly $200 per share, the entertainment and retail giant announced that it was closing 30% of its store locations in North America. In addition, the movie theater industry has failed to return to its pre-pandemic levels, and though the Disney+ streaming service is a certified hit, subscriber growth is starting to slow and licensing revenue dropped $1 billion as it directed more attention to its own service.
Theme parks were predictably strong, but it's experiencing higher expenses in its traditional TV markets because of sports programming costs. Rampant inflation, record gas prices, and weakening consumer confidence are weighing on Disney's stock, which remains richly valued despite the near-halving of its share value. The stock trades at 73 times trailing earnings and well over 100 times the free cash flow it produces, though with earnings expected to grow at more than 40% over the next five years, it's still a hard-charging company.
Disney stock may yet fall further, but this is a powerhouse company with an interconnected business model that should produce outsize returns for decades to come.
Image source: Boeing.
Boeing, down 30.8%
Defense and aerospace behemoth Boeing (BA -0.50%), whose stock is down by more than 30% this year, is seeing continuing problems with its 737 MAX aircraft, has delivered exactly zero 787 planes in the first quarter because of quality control problems, and has pushed back to at least 2025 when it will deliver the first of its new 777s. It also reported a $1.2 billion loss, much worse than what Wall Street expected, as it had to take large writedowns on both its civilian aircraft business and its defense business.
Other than that, everything's fine. Boeing did say it plans to resume deliveries of the 787 while increasing those of the 737 Max. It also expects to be cash-flow positive this year.
Yet, Boeing's stock has been a terrible investment over the past three- and five-year periods, losing 60% and 26%, respectively. While its stock has doubled in value over the past decade, the Dow index itself has more than tripled. Although analysts expect it to grow earnings by 20% annually for the foreseeable future, there are better stocks you can buy today than Boeing.
