Stocks pulled back in October again, making it the third straight month in a row that major indexes have fallen.
The Dow Jones Industrial Average (^DJI 0.40%) outperformed the other two major indexes last month but still finished down 1.4%. Concerns about elevated interest rates and a slowing economy have pushed stocks lower over the past few months. But smart investors know that sell-offs are often the best time to go shopping for stocks as high-quality names start trading at discounts.
To see if the Dow is offering any bargains, let's take a look at the three worst-performing stocks on the blue-chip index last month to see if any are worth buying.
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1. Caterpillar (down 17.2%)
Caterpillar (CAT 1.59%), the maker of mining and construction machinery, was the worst performer in the Dow Jones Industrial Average last month. The company seemed to succumb to cyclical pressures in its third-quarter earnings report, offering a weak outlook.
Caterpillar's business tends to swing with the broader economy and commodity prices, as its products are in demand when commodity prices are up and demand is strong.
In the third quarter Caterpillar said revenue rose 12% to $16.8 billion, ahead of expectations at $16.5 billion, while adjusted earnings per share jumped from $3.95 to $5.52, which was well ahead of estimates at $4.76.
Despite the strong results, the company said fourth-quarter revenue was expected to be only slightly higher than a year ago, spooking investors. However, CEO Jim Umpleby tried to boost confidence in the company's performance next year, saying, "We do expect another good year in 2024."
Caterpillar is a category leader in machinery and has delivered solid growth in a challenging environment. At a forward P/E of just 11, investors should consider taking advantage of the dip and buying Caterpillar stock.
2. Chevron (down 13.6%)
Oil prices have been elevated for the past several months, but Chevron (CVX 0.37%) shares pulled back last month after it announced two big pieces of news.
First, it said it would acquire Hess for $53 billion in an all-stock transaction, but the stock fell on the news, a sign that investors don't approve of the strategic rationale behind the deal or the 10.3% premium the company paid. The Hess deal gives Chevron some valuable assets in Guyana, but investors may not like the all-stock nature of the deal as it will significantly dilute shareholders.
In the company's third-quarter report, earnings per share tumbled from a windfall level of $5.56 a year ago to $3.05, which missed estimates at $3.33. Revenue was down 18% to $54.1 billion, but that topped expectations at $47.8 billion.
The company has also been busy making other portfolio moves. It acquired PDC Energy, giving it more exposure to key U.S. production basins, and it also took a majority stake in ACES Delta, the largest green hydrogen production and storage hub, helping it to diversify beyond oil and gas.
Chevron shares are now trading near a 52-week-low, and the stock looks well-priced. Dividend investors may want to take advantage of its 4.1% dividend yield.
3. Dow (down 6.3%)
Chemical company Dow (DOW 1.51%) was another underperformer last month, though it didn't fall as sharply as Caterpillar or Chevron.
Dow did report third-quarter earnings last month, but unlike Chevron and Caterpillar, it didn't fall on those results. Instead, the stock gradually slipped over the course of the month.
Analysts from Bank of America did say that they see several signs that petrochemical fundamentals are "near the bottom" and upgraded Dow stock to neutral.
In its third-quarter earnings report, the company beat estimates on the top and bottom lines, though revenue tumbled 24% to $10.7 billion due to a challenging macroeconomic environment. Adjusted earnings per share fell from $1.11 to $0.48.
Given the sharp decline in revenue, investors may want to wait for some clearer signs of stability beyond just the analyst comment above. The stock should recover when the business cycle starts to turn.
