IIf you’re a fan of blue chip stocks while they’re on sale, now seems like the right time to shop. Although the Dow Jones industry average (DJINDICES: ^DJI) essentially ended last month where it started, Dow constituents Cisco systems (NASDAQ:CSCO), Boeing (NYSE:BA)and Walmart (NYSE: WMT) lost 8%, 12% and almost 16% of their value in May.
However, before you dwell on these household names just because they’ve been turned on their head, you might want to step back and look at the bigger picture. Things aren’t going the way they were a few months ago. Not every stock easily bounces back from sharp sell-offs.
There’s a reason.
Image source: Getty Images.
Here comes the headwind
You can imagine why Boeing stock has struggled as much as it has over the past month…more of the same issues it’s grappled with for the past several years. While the planemaker appears to have completely resolved all of its issues with the 787 MAX, airlines are still somewhat reluctant to commit to new plane purchases while Boeing itself is still catching up. Although the results for the first quarter were actually announced at the end of April, the unexpectedly large loss has weighed on investor psyche throughout the past month.
^DJI data from YCharts
Network technology giant Cisco recouped most of its May loss on May 19 after missing last quarter’s revenue expectations and warning investors that current-quarter revenue would not be as strong as initially thought. While renewed COVID-19 lockdowns and the resulting supply chain issues are the culprits, they’re still holding back Cisco’s revenue and earnings growth.
Perhaps the most notable setback among the Dow’s 30 names in May, however, is that of Walmart. The normally reliable retailer fell short of its first-quarter earnings estimate of $1.48 per share and posted earnings of just $1.30 versus $1.69 per share in the year-ago quarter. Higher wholesale prices coupled with rising freight and labor costs are taking an even greater toll than expected. Perhaps worse, there is no end in sight to this inflationary pressure, prompting many Walmart shareholders to close their positions.
Take off your trader hat, put your investor hat back on
While these blue chip companies are down, they are far from out. Consumers will always need to buy basic goods. The world must travel by air, and airlines cannot fly aging fleets forever. Now that we are used to being able to access the internet from anywhere, the need for network solutions will never die. All three of these companies will exist in about five years and probably 50 years (if not longer).
There’s a reason some stocks are struggling now while others are rising, although up until late last year it seemed like all stocks would remain in a perpetual rally. That reason is plain reality – investors are beginning to see the inflationary toll that trillions of dollars’ worth of stimulus can take. They are also beginning to digest the possibility that the pandemic may never really end, but will instead weaken and then flare up suddenly from time to time. That wasn’t a concern just a few months ago. Now the market is almost forced to price them in.
Unlike the second half of 2020 and most of 2021, big sell-offs in Cisco, Boeing, and Walmart stock aren’t, in and of themselves, a reason to buy. Investors are still figuring out how to navigate such an environment can only be described as a stimulus hangover complicated by a pandemic that may never really “go away.” While lower lows aren’t a given, it’s still uncomfortably possible that the market will continue to see shares in Cisco, Boeing, and Walmart in a bearish light. It’s not a risk worth taking when there are so many other, more promising prospects.
And it’s not just these three stocks, by the way. A whole host of other names – including a number of blue chips – are unprepared to recover from the recent pullbacks simply because they have done so in the recent past.
bottom line? If you’re eyeing a rundown name right now, make sure you can come up with at least one crucial, fundamental reason that deserves to rise higher. Also make sure there is no good reason why it could go further down. You may find that there aren’t really many of these stocks to consider right now.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cisco Systems. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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