The Dow Jones Industrial Average (DJINDEXES: ^DJI) The market index rose 1.1% in June 2024, but some of the large companies in that portfolio posted negative returns.
Are these stumbling titans doomed, or should you consider picking up some stocks of high-quality companies on the cheap? Join me as I take a look at two of the Dow’s worst performers in June, with the aim of separating the cheap wheat from the chaff.
Nike: Down 20.7% in June
Let’s start with the biggest dive. Sports footwear and apparel giant Nike (NYSE: NKE) performed well for most of last month. The stock traded more or less sideways until June 27, followed by a 19% price drop on the last market day of the month.
Nike’s crash began with a mixed earnings report for the fourth quarter of its fiscal 2024 (ended May 31). The company topped Wall Street’s consensus profit target by 16% but missed its average revenue target by 2.3%.
More importantly, Nike management indicated it was uncertain about exchange rates, the Chinese economy and sales of lifestyle products on its Nike Digital e-commerce platform.
Many analyst firms immediately cut their price targets on Nike’s stock, some downgraded the stock to a recommendation rating, and the market took note. As a result, Nike’s stock is trading at prices not seen since the brief COVID-19 crash in March 2020.
The company currently faces many challenges. Issues like the shaky Chinese economy and unfavorable exchange rates are also common to Nike’s rivals, but soft e-commerce sales and overstocked inventories throughout the supply chain should be more directly under the company’s control.
On the positive side, Nike is taking action. The company is restructuring its product portfolio, introducing modern ideas like 3D-printed sneakers with artificial intelligence (AI) designs, and has begun cutting costs.
It may be tempting to buy some Nike stock at a price that’s been low for years. But the slow pace of progress in what’s supposedly a fast-growing e-commerce channel worries me. Is the brand losing value in the eyes of younger consumers?
Furthermore, Nike stock is not on sale. Shares are valued at modest 20x earnings and 18x free cash flow, which is a fair value for a very mature stock.
So I’m taking a raincheck on Nike’s stock at this point. There are so many deeper value ideas to pursue before we take a chance on this footwear giant’s potential turnaround.
Walt Disney: Down 4.5% in June
Entertainment powerhouse Walt Disney (NYSE: DIS) took a different path to a milder price decline in June. Coupled with a sharper plunge in April, Disney’s stock has burned through the market goodwill it earned with a stellar earnings report in February.
Why are investors looking so pessimistically at Disney and its stock these days? Well, activist investor Nelson Peltz liquidated his Disney position after losing a proxy battle over the company’s future. Peltz had been able to inject new ideas into Disney’s business plan. In particular, he wanted Disney’s board of directors to show some backbone in reviewing the plans and ideas of legendary CEO Bob Iger.
On the other hand, Peltz’s campaign may have achieved some of its goals differently. His capital management firm, Trian Partners, sold its Disney stake for a $1 billion profit. The challenge may also have given the management team and board a new sense of financial responsibility. The company’s streaming video adventures will continue, but only after it sells off money-losing assets like its Hotstar streaming service in India.
Disney’s valuation is similar to Nike’s in many ways, and slightly higher overall. To be honest, I should probably stay away from this stock as well. However, I’m more impressed with Disney’s streaming future and cross-industry entertainment empire than Nike’s struggles in a much narrower market.
There are a tiny handful of stocks that I watch like a hawk, scanning for ill-informed price declines. Disney is on that list, and the current stock ruckus looks like a solid buying opportunity to me.
So, there you have it. Nike and Disney both went under in June, but their paths forward look very different.
Nike still has some serious hurdles to jump before it can get going again, making it a tough pick for now. On the other hand, Disney’s broad entertainment empire and strategic moves in streaming make it a more compelling buy during this stock downturn.
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Anders Bylund has positions in Walt Disney. The Motley Fool has positions in and recommends Nike and Walt Disney. The Motley Fool recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
Is It Time to Buy the Worst Performing Dow Jones Stocks of June? was originally published by The Motley Fool
