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The Dow Jones Industrial Average (DJINDICES: ^DJI) The market index rose 1.1% in June 2024, but some corporate giants in that portfolio posted negative returns.
Are these stumbling titans up for the count, or should you consider picking up a few shares of high-quality companies on the cheap? Come along, as I look at two of the Dow Jones’ worst-performing stocks in June, with the aim of separating low-priced wheat from barren chaff.
Nike: Down 20.7% in June
Let’s start with the biggest dive. Sports shoe and clothing giant Nike (NYSE:NKE) things went well for the most part last month. The stock traded roughly sideways until June 27, followed by a 19% drop on the last market day of the month.
Nike’s crash started with a mixed earnings report for the fourth quarter of fiscal 2024 (ending May 31). The company exceeded Wall Street’s consensus profit target by 16%, but missed the average revenue target by 2.3%.
Rather, Nike management signaled uncertainty about exchange rates, the Chinese economy and the sale of lifestyle products on the Nike Digital e-commerce platform.
Many analyst firms immediately lowered their price targets for Nike stock, some gave the stock a lower recommendation status, and the market took notice. As a result, Nike shares are trading at prices not seen since the brief COVID-19 crash in March 2020.
The company is currently facing many challenges. Issues like China’s shaky economy and unfavorable exchange rates also apply to Nike’s rivals, but weak e-commerce sales and overstocked inventories across its supply chain should be more directly under the company’s control.
On the plus side, Nike is taking action. The company is rebalancing its product portfolio and introducing modern ideas such as 3D printed sneakers artificial intelligence (AI) designs, and started cutting costs.
It can be tempting to grab a few Nike shares at a years-low price. However, the slow pace of business in the likely 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 the modest ratios of twenty times earnings and eighteen times free cash flow, which indicates fair value for a very mature stock.
So I’ll be running a rain check on Nike 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. Along with a sharper decline in April, Disney stock has burned the market goodwill it earned with a stellar earnings report in February.
Why are investors today casting a dim eye on Disney and its stock? Well, activist investor Nelson Peltz has liquidated his position in Disney after losing a proxy battle over the company’s future. Peltz could have injected new ideas into Disney’s business plan. Most of all, he wanted Disney’s board of directors to show some backbone in assessing the plans and ideas of legendary CEO Bob Iger.
On the other hand, Peltz’s campaign may have achieved some of its goals in a different way. His capital management firm Trian Partners sold its stake in Disney for a profit of $1 billion. The challenge may also have given the management team and board of directors a new sense of fiscal responsibility. The company’s streaming video adventures will continue, but only after selling off unprofitable businesses such as its Hotstar streaming service in India.
Disney’s valuation is similar in many ways to Nike’s and slightly higher overall. In all honesty, I should probably stay away from this stock too. However, I’m more impressed with Disney’s future streaming and industry-wide entertainment empire than Nike’s struggles in a much smaller market.
There are a very small handful of stocks that I watch like a hawk, looking for poorly motivated price drops. Disney is on that list, and the current stock market decline seems like a solid buy-in opportunity to me.
So there you have it. Nike and Disney both collapsed in June, but their futures look very different.
Nike has some serious hurdles to overcome before it gets going again, making it a tough choice for now. On the other hand, Disney’s broad entertainment empire and strategic moves into streaming make it an intriguing buy during this stock dip.
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Anders Bylund has positions in Walt Disney. The Motley Fool holds and recommends positions in Nike and Walt Disney. The Motley Fool recommends the following options: Long calls of $47.50 in January 2025 on Nike. The Motley Fool has one disclosure policy.
Is It Time to Buy June’s Worst Performing Dow Jones Stocks? was originally published by The Motley Fool