Last month wasn't a great one for the overall stock market, but it was a downright awful one for a handful of blue chip stocks.
Most investors understand oversized dips can be buying opportunities, but they should also recognize when jumping into a stumbling stock is a bad idea. The stocks' current weakness may merely be an omen of what's to come. How do you know the difference? You dig deeper and consider the bigger picture.
With that as the backdrop, here's a closer look at the Dow Jones Industrial Average's (DJINDICES: ^DJI) biggest April losers. They may be blue chips, but that doesn't necessarily make them great picks right now.
The Dow's worst of the worst
The Dow Jones Industrial Average fell 5% last month. That setback doesn't hold a candle to the losses some of its constituents suffered, though. Shares of Boeing(NYSE: BA), International Business Machines(NYSE: IBM), and Home Depot(NYSE: HD) each fell nearly 13% in April, while technology giant Intel(NASDAQ: INTC) watched its stock slide over 30%.
Data by YCharts.
What went wrong?
Aircraft maker Boeing's shares lost altitude all month long. Its first-quarter results released in late April, however, ultimately validated that selling. Revenue fell 8% year over year as continued design and manufacturing problems with its newer 737 and 787 jets crimped demand. The company also booked a heavy loss of $355 million, reminding investors that these headaches aren't mere nuisances -- there's a clear financial cost to them. Then, there's the added disruption of an impending CEO switch. Current chief executive Dave Calhoun will be stepping down at the end of the year, but there's already drama regarding who should replace him.
IBM's setback is also mostly earnings-related, although the announcement it will be acquiring cloud software company HashiCorp didn't help. First-quarter earnings of $1.68 per share topped estimates of $1.60, but revenue of $14.46 billion fell short of expectations of $14.55 billion. And while most analysts are generally bullish on the idea of folding HashiCorp into IBM's existing cloud software business, now may or may not be the ideal time to work out such deal. The $6.4 billion offer for HashiCorp is also rather pricey.
As for Home Depot stock, don't blame earnings for its poor April performance -- it won't release its fiscal Q1 numbers until mid-May. Blame the macro environment instead. Inflation proved problematic during the home improvement retailer's fiscal Q4 (ended Jan. 28), dragging sales 3% lower on a year-over-year basis. Nothing's significantly changed in the meantime, though. Indeed, if anything, the environment for homebuilding and home improvement has worsened in the shadow of lingering inflation and high interest rates.
Finally, Intel stock crashed in April in anticipation of the bad news it dished out with its Q1 results. Although revenue was up 9% year over year, the chipmaker's still facing considerable challenges. Its first-quarter top line of $12.7 billion fell just a bit short of analysts' estimates, while revenue guidance of between $12.5 billion and $13.5 billion for the quarter now under way was below the $13.6 billion consensus. It's the second consecutive quarter Intel's outlook hasn't been up to snuff, although these back-to-back disappointments may only remind shareholders of deeper-rooted problems for the company.
The question remains, though ... should you buy any (or all) of April's worst-performing Dow Jones stocks?
To buy, or not to buy, these dips?
If you're looking for a sweeping, universally applicable answer, then the answer has to be no -- it's not time to buy April's worst-performing Dow stocks.
Such an answer, however, oversimplifies the matter.
While all pullbacks are potential buying opportunities, not all pullbacks are worth acting on. As I previously noted, sometimes steep sell-offs are a glimpse of what's to come. Other times, sell-offs are happening because something unexpected and insurmountable has taken shape. It's also worth noting that a calendar month isn't a sound basis for determining whether or not a sell-off has run its course. Rebounds can start in the middle of the month, and a stock might slide for two or three (or more) months before finding a bottom.
In other words, April's poor performance is only a tiny piece of the much bigger picture you should consider before diving in. With that in mind, Home Depot and Intel aren't worth stepping into following last month's stumbles.
Inflation and high interest rates are still clearly with us, and they will likely remain with us for a while. The Federal Reserve doesn't intend to cut interest rates until much later this year, and even then, those cuts will likely be modest. This will not only limit demand for new homes, but it will even limit demand for home upgrades. Both are a headwind for Home Depot.
And Intel? It's been struggling off and on for years. Its biggest competitive advantage right now is simply its massive capacity to meet the growing need for computer processors and related technology. Even so, rivals are capitalizing on its struggles. In the meantime, the company may be bogged down by the construction of the factories needed to develop its own foundry business. It's a distraction that could last for years.
But what about IBM and Boeing? There's a bullish case to be made for both.
IBM arguably is overpaying for HashiCorp. However, that premium can be worth it to get an attractive deal done. Given IBM's smashing success with 2019's acquisition of Red Hat, investors should be cautiously optimistic this purchase will pay off too. In the meantime, the technology outfit remains a cash cow, even if it's a slow-moving one. Leveraging its high-margin software business, IBM saw last quarter's operating cash flow rise 10% year over year to $4.2 billion, extending a multiquarter growth trend.
Newcomers would also be stepping into IBM stock while the dividend yield stands at a healthy 4%.
As for Boeing, yes, the company's a mess. Much of this mess is already reflected in the stock's price, though. Shares are back to where they were shortly after the COVID-19 pandemic took hold in 2020, and down 33% from their 52-week high. The company has plenty to figure out, but it's finally being forced to do so; a new CEO should help.
More than anything, however, the airline industry can't get around the fact it's going to need to purchase on the order of 42,000 new planes over the course of the coming 20 years. One way or another, Boeing's going to have to be a big supplier of those passenger jets. Just keep in mind any investment should be a (very) long-term position.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool recommends Intel and International Business Machines and recommends the following options: long January 2025 $45 calls on Intel and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
