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Is It Time to Buy the S&P 500's 3 Worst-Performing November Stocks?

Motley Fool - Mon Dec 4, 2023

November was a big month for the stocks as all three major indexes soared.

The S&P 500 finished up 8.9% for the month, posting its best performance since July 2022. However, not every stock on the S&P 500 was a winner last month.

Are the S&P 500's biggest losers of the month worth buying? Let's take a closer look at the three worst performers to see if they're just down temporarily, or if they're facing more serious challenges.

A stock chart with an arrow going down.

Image source: Getty Images.

1. Paycom Software (down 25.8%)

Paycom Software (NYSE: PAYC), which makes cloud-based HR software, tumbled last month after the company issued a disappointing third-quarter earnings report.

While the company's results were mostly in line with estimates, its guidance was well below expectations. Revenue in the quarter rose 21.6% to $406.3 million, which was below the analyst consensus, though its adjusted earnings per share jumped from $1.27 to $1.77, ahead of estimates.

However, for the fourth quarter, the company sees revenue of $420 million-$425 million, reflecting growth of just 14% at the midpoint and well below the consensus at $452.3 million. The culprit appeared to be cannibalization from Beti, the company's self-serve payroll feature for employees. Several analysts downgraded the stock on the slowdown in growth, and many of them expect growth to continue to decelerate in 2024.

The good news for Paycom investors is that the valuation has fallen enough to make the stock reasonably priced at a price-to-earnings ratio of just 24, which could pay off if it can return to its historical growth rate. Investors seemed to see the sell-off as a buying opportunity, as the stock rose about 20% over the remainder of the month after falling nearly 40% on Nov. 1.

2. Cigna (down 15%)

Health insurer Cigna (NYSE: CI) was another big loser last month, as gains early in the month on a solid earnings report were offset by a decline at the end of the month on reports that it was in talks to merge with Humana.

In its third-quarter earnings report, the company raised its guidance, calling for adjusted earnings per share of at least $28 next year, and saying that growth would come in at the high end of its 10%-13% long-term range. It also expects to benefit from price hikes in two of its biggest states.

Later in the month, investors seemed to balk at The Wall Street Journal's report of a merger with Humana. The reason for the sell-off wasn't entirely clear. Investors seemed to fear that regulators could block a deal, that it could be costly to push it through, or that it could involve divestitures of key profit streams like its Medicare Advantage plan or its Pharmacy Benefit Manager (PBM).

Cigna looks like a good value after the sell-off, but the merger news is likely to overshadow any fundamentals in the business for now.

3. APA (down 9.4%)

Finally, APA (NASDAQ: APA), an oil and gas exploration and production company, was the third-worst performer on the S&P 500 last month.

APA delivered a solid earnings report at the beginning of November, but the stock fell as oil prices slid. In particular, APA shares fell 9% over a four-trading-day span from Nov. 3-9.

Oil prices fell 4% on Nov. 7 on worries that a weak outlook in the Chinese economy could impact global oil demand.

APA stock trades at a low price-to-earnings ratio of just 7.2, indicating a good value, but its profits and the value of its reserves could be significantly impacted by falling oil prices.

While the stock seems like a solid bet, given its low valuation and strong third-quarter earnings report, investors should be wary of the potential impact of falling oil prices.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apa and Paycom Software. The Motley Fool has a disclosure policy.

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