Is It Time to Buy October’s Worst-Performing S&P 500 Stocks?

by skolnes


Generally speaking, when you buy a stock doesn’t really matter if it’s a good company and you are investing with a long-term mindset. But that doesn’t mean it doesn’t help your overall returns to buy a stock when it’s trading at a discount. Doing so helps you get more bang for your investment buck.

However, not all discounted stocks are necessarily worth buying. There’s always more to the story. Sometimes a stock’s setback is a warning of even more trouble ahead.

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Before blindly diving into October’s worst-performing S&P 500 (SNPINDEX: ^GSPC) stocks just because they’re suddenly trading cheaper, here’s a look at the rest of the story. You may not want to scoop up any of them just yet.

Getting straight to the point, last month’s biggest S&P 500 losers were Super Micro Computer (NASDAQ: SMCI), Qorvo (NASDAQ: QRVO), Huntington Ingalls Industries (NYSE: HII), and Estée Lauder (NYSE: EL). Each stock was downright boring for the better part of the month. In just the last two days of October, however, each ticker ended up losing on the order of 30% versus the index’s 1% dip.

^SPX Chart
^SPX Chart

There’s a common thread: last quarter’s earnings and/or guidance for the current quarter. Many companies in a wide range of industries are finally feeling the impact of economic challenges.

Take semiconductor company Qorvo as an example. Although it beat its top- and bottom-line estimates for the three-month stretch ending in September, its revenue guidance of about $900 million for the quarter now underway fell short of analysts’ consensus of $1.06 billion. The company cited stiff competition and tepid smartphone demand as the key cause for its lackluster outlook.

Estée Lauder’s story is a similar one, although arguably worse. While its fiscal first-quarter results were more or less in line with expectations, they were still down from year-ago comparisons. The crux of the stock’s steep sell-off, however, was the company’s decision to cut its dividend and withdraw guidance for the full year mostly due to uncertainty regarding its business in China. Despite the nation’s fresh stimulus efforts, CEO Fabrizio Freda explained, “Consumer sentiment in Mainland China weakened further in our first quarter.” He added, “We anticipate still strong declines near term for the industry.”

The underlying economic lethargy may even be undermining government spending to some degree. Not only did Huntington Ingalls’ quarterly earnings fall short of estimates, but the shipbuilder was forced to lower its five-year cash-flow outlook thanks to new doubts about a contract with the U.S. Navy and supply chain challenges.

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