Are these frigid Dow stocks in for a longer winter?

Dow stocks laggards buy opportunity

At Friday’s annual Groundhog Day ceremony in Pennsylvania, Punxsutawney Phil predicted that we are in for an early spring for the first time since 2020. 

The U.S. stock market has come a long way since then, battling back from a pandemic-led recession to reach fresh record highs. With technology stocks as hot as the rising sun, investors may not see the shadow of a falling market anytime soon.

Over the past 12 months, the Dow Jones Industrial Average (DJIA) is up 13.5%. Since winter officially began on December 21st, the blue-chip index is up 3.3%. However, this figure is somewhat misleading, given the wide performance disparity among the Dow’s 30 members.

On Monday, construction bellwether Caterpillar boosted the DJIA on an otherwise cloudy day by reporting better-than-expected fourth-quarter earnings. It is one of seven Dow-30 companies that have seen its stock rise by at least 10% since the winter solstice. Merck is the benchmark’s best performer since then with a 16% return. Amgen, IBM and Travelers have each advanced 12%.

At the other end of the thermometer are a handful of Dow stocks that have suffered double-digit percentage declines. Intel, 2023’s second-biggest winner, is one of them. 3M, which fell 9% last year, is another.

These three laggards are also bringing up the rear — and contributing to the Dow’s underperformance versus other major averages since December 21st. Will their cold winter headwinds continue to blow?

Will Boeing stock recover? 

The Boeing Company (NYSE: BA) is still reeling from last month’s decision by U.S. regulators to ground 737 Max 9 jets in the wake of the Alaska Airlines incident. Its shares are down nearly 20% since but are showing signs of stabilizing. Over the last few weeks, BA has traded in a tight range of roughly $200 to $215 as investors debate if it's an opportunity — or if another shoe will drop.

As the nation’s aircraft maker remains in a holding pattern, it has more to work through than the reputational fallout from the 737 Max issue. Due to a series of crises and supply chain disruptions, Boeing continues to report losses. Cash flow is improving, however, and some growth catalysts lie ahead — including an expanding U.S. defense budget. If its new CEO can successfully navigate the current crisis, there will be a large order backlog and accelerating deliveries on the other side. But with these forces not likely to play out until at least 2025, BA may be dead money for the rest of the year.

Is Nike stock under $100 a bargain?

NIKE Inc. (NYSE: NKE) continues to slip lower after the sneaker king missed fiscal 2024 second quarter revenue estimates and slashed its full-year outlook shortly before Christmas. Once again, weak sales in Greater China were largely to blame, and management said it saw ongoing weakness there and in other international markets. Nike is also dealing with an $8 billion inventory glut that will require price reductions to move — and weigh on near-term profits.  

While the inventory issue should sort itself out in the intermediate term, Nike may have a prolonged China problem. A recent Reuters poll showed that Chinese economic growth is expected to slow to 4.6% this year and 4.5% in 2025. While this is still above what is projected for most developed economies, it is not the type of growth that Nike and other consumer product companies banked on. With Greater China accounting for around 15% of Nike brand revenue, the stock probably won’t put its best foot forward until government stimulus measures in the region generate stronger growth.  

Is there an end in sight to WBA’s downtrend?

In 2023, Walgreens Boots Alliance Inc. (NASDAQ:WBA) finished down for the seventh time in eight years. It is already down 15% this year. A myriad of issues continue to plague the drug store chain, including pharmacist labor shortages, massive opioid settlements and online competition. To address its struggling pharmacy and healthcare business (and pare down debt), management opted to slash the dividend by 48%. While this could ultimately pave the way for a turnaround, it removed a feature of the stock that value investors were clinging to.

WBA’s ambitious plans to conform to an evolving healthcare industry hold promise but will likely take years to play out. Recent moves to invest in VillageMD primary care clinics and investments in outsourced benefits provider CareCentrix are good steps. The new leadership team has a lot more work ahead to win back investors though.

This is shaping up to be another down year for WBA — but if new leadership can show that its strategy is working and a return to profit growth is likely, 2025 could be a rare up year for the stock.  

Like most of the Dow’s laggards, we’ll probably have to wait until Punxsutawney Phil’s next appearance to know.

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