There are no two ways about it -- August was a rough month for the market. Not even blue chips were immune to the sweeping weakness. The Dow Jones Industrial Average (^DJI 0.56%) tumbled 4% last month, thanks to an 8% pullback from its mid-August peak. Of course, this setback means that around half of the Dow's 30 tickers fell by even more.
Veteran investors are looking at the most extreme of these sell-offs for potential bargains, as they should be. Before plowing into the Dow's worst performers from August simply because they were the worst performers, investors might want to take a step back and reconsider. This time around, the sharp pullbacks also hint at more serious problems than recent headlines suggest.
What went wrong
If you're wondering, last month's biggest losses among the Dow's stocks were suffered by Walgreens Boots Alliance (WBA +0.00%), Intel (INTC +1.05%), Salesforce (CRM 3.45%), and 3M (MMM 0.12%). Walgreens fell a little more than 11% in August, while Intel and Salesforce lost 12% and 13%, respectively. 3M led the bearish charge, giving up 15% of its value. The bulk of those losses materialized late in the month when the Dow Jones Industrial Average started selling off in earnest.
For each of these four tickers, there's more to the story than marketwide malaise.
Take Walgreens Boots Alliance as an example. A federal judge recently ruled that the drugstore chain contributed to San Francisco's opioid abuse epidemic, adding to a growing financial liability linked to the matter.
A usually resilient Salesforce cautioned shareholders in conjunction with its second-quarter report that the remainder of the year wouldn't be quite as healthy as first expected. Namely, the company anticipates full-year revenue of right around $31.0 billion, down slightly from May's forecast for a top line closer to $31.7 billion. Per-share earnings guidance was dialed back by a similar degree.
NASDAQ: WBA
Key Data Points
Much of 3M's August weakness can be chalked up to a failed legal strategy meant to sidestep lawsuits related to defective earplugs. Despite the 3M subsidiary that made the earplugs filing for bankruptcy, a judge is allowing suits against the parent company to proceed.
It's Intel's setback; however, that's perhaps the most storied of the four. Already reeling from broken supply chains and a subsequent semiconductor shortage, rival Advanced Micro Devices (AMD) just introduced a new desktop processor that could cause even more trouble for Intel. AMD's new Ryzen 7000 CPU series is the world's first 5-nanometer chip and considerably faster than Intel's comparably priced processors.
You're investing in companies -- not just buying stocks
At first blush, the headlines look, sound, and feel like the usual fare that upends a stock. The market's knee-jerk responses, however, aren't necessarily built to last.
Take a step back and take a more critical look at the headlines and their underpinnings, though. Most of them point to problems that have been in place for some time and will remain in place for some time.
NASDAQ: INTC
Key Data Points
For instance, Intel's CPU manufacturing challenges began materializing back in 2020...problems that still aren't completely fixed. Rather than continuing to outsource its chip production, the company is now taking matters into its own hands and plans to build a manufacturing facility in Germany and another in Ohio. These are both long-term projects, though, and players like AMD could continue to chip away at Intel's existing market share before either of those production facilities is completed.
In the meantime, Salesforce and a long-beleaguered 3M are both contending with currency-related headwinds and sheer economic weakness. Ditto for Walgreens Boots Alliance, which is not only increasingly at risk of opioid lawsuits but also struggling to find key employees, including pharmacists. Solution? A $75,000 hiring bonus on top of their above-average pay.
These challenges aren't evidence of temporary stumbling blocks; they are clues of systemic challenges that have been in place for years and could linger for years.
So no, it's not time to buy the Dow's biggest losers from August.
That's not to say you should never buy good stocks while they're cheap; that's precisely when you should step into them. It's simply to say one month's weakness isn't enough of a reason to nibble. Beaten-down stocks must still be worth owning and offer adequate upside to justify the risk of more downside. On a risk-versus-reward basis, none of these tickers are as attractive as alternatives. Each has a great number of challenges -- too many challenges -- to resolve readily.
To this end, it's worth noting that while 3M, Intel, Salesforce, and Walgreens were the Dow's worst performers last month, all four are also among the Dow's biggest losers for the past several months. Anybody who bought them following any part of that weakness is now in the red. Take the hint.
