Not all blue chips have been red hot in 2023. In a year that finds the general market getting bubbly, nearly half of the components of the classic market index are trading worse than flat.
Coca-Cola (KO), Home Depot (HD 0.94%), and Disney (DIS -0.04%) are some of the 14 surprising members of the Dow Jones Industrial Average (^DJI 0.40%) that are trading lower in 2023. I guess you can't spell the word "down" without D-O-W, but these three stocks aren't likely to stay out of favor for long. Let's take a closer look.
Coca-Cola
Shares of Coca-Cola delivered an 11% dividend-adjusted gain in 2022, helping it stand out as many popular growth stocks went the other way last year. The roles have reversed this year, with the pop star pouring out a 6% decline that includes its generous quarterly payouts.
Coca-Cola is the undisputed victor of the cola wars, a global juggernaut with more than $44 billion in trailing annual revenue. Its yield of 3.2% may not seem as enticing to income investors with money market yields delivering much higher distributions these days, but it's still a significant treat for long-term shareholders.
Image source: Getty Images.
The beverage stock giant also offers all-weather appeal. A can, bottle, or fountain pour of your favorite Coca-Cola product is a low-priced indulgence, even in recessionary times. Revenue did take a rare step back in 2020 as the pandemic proved disruptive, and there were some margin pressures last year. However, Coca-Cola has never been as effervescent on both ends of the income statement as it has been over the past four quarters.
The stock may not seem cheap at 22 times this year's projected earnings, but Coca-Cola has historically commanded a healthy premium to the market among consumer non-durables companies because of its consistent performance. Remember that 3.2% yield? Coca-Cola has been able to increase its distributions for 61 consecutive years. History has been kind to those who buy in on the kind of pullback that investors are seeing right now. When it takes a dip, take a sip.
Home Depot
On the surface, it's easy to see why Home Depot is trading marginally lower in an otherwise positive year. The real estate market has cooled down in a whirlwind of rising rates, and the lack of housing activity finds fewer people turning to the orange aprons for help. Net sales have declined 3% through the first half of this fiscal year, and net income has taken a bigger 9% hit in that time.
Home Depot's board sees an opportunity here. It authorized a $15 billion share buyback last month. Guidance calls for weakness to continue through the second half of this year, but things should get better soon. The bearish narrative for the home improvement market is fairly easy to figure out.
With homeowners hesitant to part with their existing homes -- mortgages at much lower than current rates -- a lot of the buying activity has shifted to developers erecting new properties. A brand-new home likely already has the buyer's customized touches, limiting the trips to the hardware store. High rates also put an end to the cash-back refinancing that fueled home makeovers in the past. Let's take this story to the next step.
Let's turn to the masses that are seemingly trapped in their older homes with low mortgage rates. If they don't see interest rates fall sharply soon, aren't they going to realize that they may be in their forever home? Investing in home improvement projects will make a lot more sense under that realization, and bucket-list makeover dreams will bubble back up to the surface.
Disney
Unlike Coca-Cola and Home Depot, Disney doesn't pack a roughly 3% yield to entice income investors. It hasn't paid out a distribution in more than three years, even though it plans to bring back a modest distribution before the end of this year. The appeal of Disney here, with the shares trading 5% lower year to date, is that consumers crave entertainment.
Disney franchises are iconic, enhanced by its acquisitions of Pixar, Marvel, and Lucasfilm over the years. Media stocks in general have been laggards this year, as investors question the profitability math behind the migration from legacy linear networks to currently deficit-saddled premium streaming services.
Disney also has had more misses at the box office than usual lately. However, it continues to watch over the world's most visited collection of theme parks. Mickey Mouse will eventually find where his cheese wheel of magnetic content was moved to. Betting against Disney in the long run is a wager you probably don't want to make.
