The S&P 500 has rebounded strongly from last year's pullback, but the broad-market index stalled out in August as concerns about rising interest rates and a recovery that may have gotten ahead of itself contributed to the decline in stocks.
As you can see from the chart below, the S&P 500 edged down 1.8% in August, slightly better than the Nasdaq and Dow Jones Industrial Average. Though investors don't typically like to see their stocks fall, sell-offs can lead to buying opportunities if they are for short-term reasons.
Let's take a look at the three worst-performing S&P 500 stocks from August to see if any are worth buying.
1. Insulet (down 30.7%)
Insulet (NASDAQ: PODD), a maker of insulin-delivery systems, was falling last month as a solid earnings report wasn't enough to overcome the concerns in the industry about falling prices for insulin.
As you can see from the chart below, the stock fell steadily over the course of the month.
In its second-quarter earnings report, the company posted a 32% increase to $396.5 million, ahead of estimates at $385 million, with nearly all of that revenue coming from its Omnipod insulin delivery device.
On the bottom line, it posted an adjusted profit per share of $0.38, up from a per-share loss of $0.06 and better than the consensus at $0.26.
For the full year, it also raised its revenue growth guidance to 22% to 25%. Despite the strong results, the stock fell on concerns about increasing competition in the industry, as even Amazon lowered its price to $35.
Given the price pressure in the industry and Insulet's valuation, investors are better off treading lightly with the stock.
2. ResMed (down 28.2%)
Shares of ResMed(NYSE: RMD) took a dive after the medical company best known for treating sleep disorders posted disappointing results in its fiscal fourth-quarter earnings report.
Revenue in the quarter was up 23% to $1.1 billion, which was short of $1.14 billion. Gross margin fell by 210 basis points to 55%, and adjusted earnings per share ticked up from $1.49 to $1.60, missing estimates at $1.69.
The company also raised its dividend by 9% to $0.48.
However, the market responded poorly to the miss on the top and bottom lines, and the company, like Insulet, faces pressure from its valuation and margin compression. Investors should hold back until the company can reaccelerate its profit growth.
3. Tapestry (down 22.8%)
Like the other names on this list, Tapestry (NYSE: TPR) issued a disappointing earnings report last month, but the real reason that the stock fell is that investors weren't happy about its announced acquisition of Capri Holdings, the owner of Michael Kors, Versace, and Jimmy Choo.
Tapestry, which owns Coach and other fashion brands, said it would pay $8.5 billion to take over Capri, though investors seemed to think Tapestry was overpaying for it as the price of $57 per share represents a 59% premium to the weighted average price over the 30 days prior to the news.
In a number of ways, the news makes sense as the companies have a similar multibrand approach and a focus on shoes and handbags.
In its fourth-quarter earnings report later in the month, revenue was essentially flat at $1.62 billion, missing expectations at $1.65 billion, but stronger gross margins led to 20% growth in earnings per share to $0.95, below the consensus at $0.97. Its guidance for fiscal 2024 was also below estimates.
Given that weakness and the doubts about the Capri deal, the stock is best avoided for now.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ResMed. The Motley Fool recommends Insulet and Tapestry. The Motley Fool has a disclosure policy.
