The Dow Jones Industrial Average managed to post a small gain in the first quarter of 2023. Unfortunately, not all 30 stocks participated in the modest move higher. A few stocks actually dropped more than 10% in the first three months of the year.
Let's take a closer look at the three worst-performing stocks in the Dow Jones Industrials through the end of March (in reverse order of performance) to see if any of them are worth buying.
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3. Honeywell (down 11.8%)
Honeywell (HON -0.91%), like other industrial companies, has struggled on both sides of the income statement, facing weakening demand and rising costs due to inflation.
As a result, the stock has drifted lower over the course of the first quarter, missing out on the broader recovery in the stock market.
Other than its fourth-quarter earnings report, the main news out on the company so far this year is that current president and chief operating officer Vimal Kapur will succeed Darius Adamczyk on June 1.
Honeywell's top-line growth in the fourth quarter was solid with organic sales, which exclude currency exchange, up 10%, and reported revenue rose 6% to $9.19 billion, slightly below the consensus at $9.25 billion.
On the bottom line, Honeywell's adjusted earnings per share (EPS) improved, up from $2.09 to $2.52, but that was in line with analyst estimates.
Honeywell expects just modest growth in 2023 calling for 2% to 5% organic sales growth to $36 billion to $37 billion, and adjusted EPS growth of flat to 5%, reaching $8.80 to $9.20.
Based on that forecast, the stock trades at a price-to-earnings ratio of 21, and it could be vulnerable to a recession as it sells big-ticket times like smart building management systems and aircraft engines.
Given that, investors may be able to find better value elsewhere.
2. Johnson & Johnson (down 13.1%)
It's hard to find a safer stock than Johnson & Johnson (JNJ -1.15%). The company operates in healthcare, a mostly recession-proof industry, and it's diversified across three business segments: consumer goods (like Tylenol), medical devices, and pharmaceuticals, though it will spin off its consumer goods division.
The healthcare giant is also only one of two U.S. companies, along with Microsoft, to enjoy a AAA credit rating from S&P Global Ratings, and it's a Dividend King, having raised its quarterly payout every year for more than 50 years.
However, those qualities haven't protected J&J this year as the stock is down 13% through the first quarter, and like Honeywell, the stock steadily declined over most of the quarter.
The healthcare conglomerate received some bad news on the legal front as an appeals court rejected the company's attempt to move roughly 40,000 lawsuits over its talc-based baby powder causing cancer to a bankruptcy court. That will likely raise the end cost to J&J, which some analysts have estimated to come to $10 billion.
The company also discontinued its RSV adult vaccine, a disappointment for investors.
In its January earnings report, the company called for modest EPS growth in 2023 at 3% to 5%, indicating 2023 could be a challenging year for the stock.
1. 3M (down 14.3%)
Like Johnson & Johnson, 3M (MMM -0.66%) has struggled this year in part because of legal troubles.
The company is embroiled in multiple liability lawsuits including over faulty earplugs and "forever chemicals," or PFAS, as the company recently said it would stop making PFAS.
In fact, the recent ruling in the Johnson & Johnson case has negative implications for 3M's own litigation around its earplugs.
3M's earnings report was also a disappointment as the company called for 2023 earnings per share of $8.50 to $9, below the $9.88 it reported in 2022, and short of the Wall Street consensus at $10.22. It also expects revenue to fall 2% to 6% this year.
The weakness was due in part to macroeconomic challenges as the company is cutting 2,500 jobs, exiting Russia, facing challenges in China, and dealing with the litigation mentioned above.
Given that reality, the stock seems better off avoided for now.
