Buy low, sell high is a maxim of investing, and a good time to buy low is when a stock has just fallen sharply. That's why it's smart to track the worst-performing stocks on the market. Sometimes, you can find a deal.
September was an ugly month for the stock market as the S&P 500 fell 9.3%, but the two worst-performing stocks, FedEx (FDX -0.29%) and VF Corp (VFC 0.50%), fell nearly 30%, dropping 29.6% and 27.8%, respectively. Is the sell-off a buying opportunity or a red flag?
Let's take a look at why these stocks were the worst in the broad-market index and where they stand today.
1. FedEx: down 29.6%
FedEx grabbed headlines in September after it announced preliminary first-quarter earnings that were well below analyst estimates and also pulled its guidance for the fiscal year.
The news stunned Wall Street and dragged down the entire stock market, as the logistics giant is seen as a bellwether for the global economy. FedEx stock plunged 21% as the shipping company said adjusted earnings per share fell from $4.37 in the quarter a year ago to $3.44, even as revenue increased 5.5% to $23.2 billion on higher prices. Management cited accelerating global volume softness in the final weeks of the quarter, as well as macroeconomic weakness in Asia and service challenges in Europe.
In response to the slowdown, FedEx announced a number of cost-cutting measures but forecast adjusted earnings per share of just $2.65 in the current quarter.
As a logistics company, FedEx's business is highly cyclical, and global recessions tend to come with a decline in shipping volumes. While the global economy isn't in a recession yet, macroeconomic headwinds are forming in much of the world, and freight volume fell in the quarter, leaving it with excess capacity.
The good news for investors is that FedEx's valuation looks much more attractive after the recent sell-off with a trailing price-to-earnings ratio of less than 8. Though that number will go up as its earnings decline this year, it shows how cheap the stock would be in a healthy economy. In other words, the next several months are likely to be rough for FedEx, and the stock could move lower, but over the long term, the current price looks like a great entry point.
To sweeten the deal, FedEx stock offers a dividend yield of 3% currently.
2. VF Corp: down 27.8%
You may not have heard of VF Corp., but chances are you're familiar with some of their top brands. The company owns Vans, North Face, Timberland, and Supreme, among others.
The main culprit for VF's sharp decline in September was the guidance cut the company announced for fiscal 2023 at its Investor Day conference on Sept. 28. That sent the stock down 7%, and it fell 15% over the last three sessions of the month after already declining on concerns about rising interest rates and a potential recession.
As an apparel and footwear seller, VF Corp is sensitive to consumer discretionary spending, which tends to rise and fall according to the broader health of the economy.
In its update, the company cut its fiscal year EPS guidance from $3.05 to $3.15 to $2.60 to $2.70, which is down from $3.18 in fiscal 2022. It now sees revenue up just 5% to 6% for the year, compared to a previous forecast of at least 7%.
Management noted weaker-than-expected back-to-school sales from Vans and a more promotional environment leading to an increase in markdowns. It also said it would take a goodwill impairment charge on Supreme of between $300 million and $450 million in the current quarter.
At the investor conference, VF issued FY 27 guidance, calling for an operating margin of 15% by then and a compound annual EPS growth rate of high-single to low-double digits. It also forecast a total shareholder return, which includes dividends, in the low-double-digits to low teens. Had it not been for the guidance cut for the current year, that forecast likely would have given the stock a lift.
Like FedEx, VF Corp is a proven winner, and the company has grown over the years through both acquisitions and organically. With the stock now down nearly two-thirds from its peak last year, the sell-off looks like a great buying opportunity as shares trade at just 11 times fiscal 2023 earnings. Its dividend yield has also ballooned up to 6.9%, and VF is a Dividend Aristocrat.
While the stock could face near-term headwinds given the macro-level uncertainty, this should be a long-term winner at the current price.