The Dow Jones Industrial Average was the best-performing of the three major indexes in 2022, but 2023 hasn't been as kind to the blue chip index.
The regional banking crisis has hit the Dow hard, and the rebound in tech stocks has also left it lagging behind the S&P 500 and Nasdaq Composite, which have more exposure to the tech sector. As you can see from the chart below, the Dow is actually down slightly for the year even as the other two indexes have delivered solid gains.
Sell-offs, however, can lead to buying opportunities as investors take advantage of oversold stocks. Are there any of these opportunities on the Dow right now? Let's take a look at the three worst-performing stocks so far this year in the Dow's list of 30 holdings to see if any are worth buying.
1. 3M (down 18.3%)
3M (MMM -0.96%) is a classic blue chip stock. The diversified industrial company makes everything from healthcare products to chemicals, to safety products like N95 masks and office products like Post-it notes and Scotch tape.
2023 has been a challenging year for 3M as it's embroiled in multiple lawsuits, including some related to government-contracted earplugs that did not prevent hearing loss for some members of the U.S. Armed Forces. The company has already set aside $1 billion to fund potential liabilities related cases filed against Aearo Technologies, the subsidiary that made the earplugs, though the case is still playing out in court.
In response to protests about forever chemicals known as PFAS, 3M also said late last year that it would stop making the chemical by 2025, taking a charge of $1.3 billion to $2.3 billion, and pulling the plug on $1.3 billion in sales with roughly $200 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
Finally, 3M's first-quarter performance also showed the company struggling with the macroeconomic headwinds, and it announced layoffs, cutting 6,000 jobs across a range of departments. Revenue in the quarter fell 8% year over year to $9 billion, and adjusted earnings per share was down 25%.
While those challenges are likely already reflected in 3M's stock price, the stock isn't showing any signs of a turnaround yet. Therefore, investors are likely better off avoiding it.
2. Walgreens Boots Alliance (down 16.1%)
2023 has been a bust so far for the pharmacy sector as Walgreens Boots Alliance (WBA -0.84%) and CVS are both down sharply this year.
Lapping strong demand for COVID-19 vaccines a year ago has presented some headwinds for these companies. In its fiscal second-quarter earnings report, revenue rose 3.3% year over year to $34.9 billion, but adjusted earnings per share fell 26% to $1.16.
Management did say that it expected to return to profit growth in the second half of the fiscal year as pandemic comparisons get easier. Meanwhile, Walgreens is focused on diversifying away from the pharmacy business, rearranging its corporate portfolio by acquiring primary care providers like VillageMD and home care providers like CareCentrix. It's a risky strategy, and investors still seem skeptical of it as the stock is trading down roughly 50% over the last five years, and now trading near 10-year lows.
Given that track record, investors are better off taking a wait-and-see approach with Walgreens.
3. Chevron (down 14.5%)
Chevron (CVX 0.60%) rounds out the three worst performers on the Dow this year. The oil major is a Warren Buffett favorite, but oil stocks generally move in response to crude prices and broader economic forecasts. With a global recession possibly around the corner, that puts Chevron in a tight spot, and investors seem to think the stock has peaked.
Chevron's first-quarter results were still strong as the company benefited from elevated oil prices for much of the quarter. Revenue in the quarter rose 5% to $6.6 billion, though that was due to higher realized margins in its downstream refinery business, while upstream revenue from oil production fell due to lower oil prices from a year ago.
Earnings per share also ticked up 7% in the quarter, and there were no red flags for Chevron. However, oil prices have been edging lower, and the stock faces more difficult comparisons over the rest of the year. With a recession threatening to cool off oil prices, Chevron stock could head lower over the duration of 2023.
