The Dow Jones Industrial Average is an index made of 30 prominent U.S. companies; its broad representation of America's largest businesses makes the index heavily followed by Wall Street. The Dow is a tough circle to get into, so one might expect its stocks to remain pretty resilient in a volatile market.
However, that hasn't been the case for some of these dogs of the Dow; here are the three worst-performing Dow Jones members of 2022 and whether a turnaround is in store or if the stocks are cheap for a reason.
1. Nike: Down 36% year-to-date
NYSE: NKE
Key Data Points
Apparel giant Nike (NKE +0.57%) is one of the biggest names in sports and a globally recognized brand. The swoosh logo is all over the shoes and apparel of some of the world's most famous athletes, including LeBron James, Cristiano Ronaldo, and Michael Jordan. The company's done $46 billion in sales over the past year and has averaged 7% annual revenue growth over the past decade. In other words, Nike keeps growing at a healthy clip despite its massive size and success to date.
But the stock's been a sore spot for investors since the beginning of the year, falling 31% since January. Sometimes a falling share price can signal something is wrong inside the company, but it doesn't have to be that way. Below you can see the stock's valuation using the price-to-earnings ratio (P/E) has been a roller coaster over the past few years. The stock traded around 80X earnings in early 2021, far above its historical norms, around a P/E of 28.
NKE PE Ratio data by YCharts.
A bear market often means that overvalued stocks like Nike are going to cool off, and it looks like that's what's happening with Nike. The store returning to its historical valuation is good because it can allow the company's growth to drive the stock price. Analysts believe that Nike's earnings per share (EPS) will grow 12% annually over the next three to five years, about the same as the past decade. Given that, one might argue that Nike's historical norms represent near fair value for the stock. In that case, Nike isn't cheap yet, and the stock could still fall further in the short term.
2. Salesforce.com: Down 37% year-to-date
NYSE: CRM
Key Data Points
Enterprise software company Salesforce (CRM +2.12%) was one of the first software-as-a-service (SaaS) stocks to hit Wall Street when it went public in 2004. Starting as a customer management solution, companies can run virtually every aspect of their operations through the various features that Salesforce offers. Salesforce has done more than $29 billion in revenue over the past year and is still growing like its hair's on fire; the company's revenue has grown an average of 27% annually over the last ten years.
But that growth could slow down; analysts are projecting annual revenue growth in the low to mid-teens over the next several years, and the stock's price, down 37% since January, reflects reduced expectations. You can see in the below chart how the price-to-sales ratio (P/S) is near its lowest in a decade:
CRM PS Ratio data by YCharts.
The stock's valuation is much lower than average over its history, but Salesforce isn't as small and nimble as it used to be, slowing its growth. It might be fair that the stock's lower valuation has priced in this potential slowdown in the business, though it's become harder to call the store cheap in the face of slowing growth. Long-term investors can still enjoy Salesforce's trajectory as one of the world's dominant software companies, but investors should temper expectations.
3. Intel: Down 43% year-to-date
NASDAQ: INTC
Key Data Points
Semiconductor company Intel (INTC +5.48%) is one of the leading chip companies worldwide, known for its leadership in central processing units (CPU); it invented the x86 chip architecture widely used today. Total revenue is $73 billion over the past 12 months, making Intel one of the world's largest technology companies. CPUs are essentially the brain of a computer device, executing the commands that users input.
Intel's stock has fallen 43% since January; the company is investing heavily in new fabrication facilities when the economy is shaky, which could be scaring investors. The company's plans could cost Intel most of its free cash flow over the next several years, making the stock a bit riskier in the short term. The declining stock price has repriced shares at a P/E of less than 7, its lowest in ten years.
INTC PE Ratio data by YCharts.
Leaning into a down cycle in semiconductors can be risky but could pay off for long-term investors. The fabrication facilities are long-term assets, and Intel is offsetting some of the upfront costs through strategic partnerships and benefits from the recently signed CHIPS Act. The ride could remain bumpy for a while, but Intel's current valuation could be an excellent entry point if it achieves its long-term goals.
