Through the first six months of 2024, the S&P 500 has risen by 15% in what is shaping up to be another strong year for the markets. But while it has been good news for many stocks on the index, there have been some extremely big disappointments as well.
Three stocks that have generated disastrous returns thus far this year are Walgreens Boots Alliance (NASDAQ: WBA), Lululemon Athletica (NASDAQ: LULU), and Intel (NASDAQ: INTC). Here’s a look at why they have been struggling, and whether they’re worth buying at their reduced prices.
Walgreens Boots Alliance: Down 56%
Pharmacy retailer Walgreens Boots Alliance gets the distinction of being the S&P 500’s worst-performing stock at the midway point of 2024. Unfortunately, Walgreens was already a likely candidate for this distinction at the start of the year.
In January, the company slashed its dividend in half as the new CEO, Tim Wentworth, has been on a mission to help turn around the struggling business.
Unfortunately, it’s not an easy task given that the healthcare company is still paying a (reduced) dividend, investing in a costly healthcare strategy that involves opening primary care clinics, and has a core business that normally generates thin margins as it is.
Wentworth has admitted the company’s “current pharmacy model is not sustainable” and that the business is looking at potentially closing up to one-quarter of its 8,600 U.S. stores. Although sales grew at a modest rate of 2.6% for the quarter ending May 31, the company lowered its guidance for adjusted earnings this year, noting a “worse-than-expected U.S. consumer environment.”
There’s simply no reason to expect a turnaround for Walgreens stock anytime soon. Wentworth has a tough task on his hands in trying to make the pharmacy chain a better business. And investors are better off not waiting to see how that will turn out — this is an incredibly risky stock. It wouldn’t surprise me if management ends up scrapping the entire dividend in the near future.
Lululemon Athletica: Down 41%
Lululemon is the second-worst performing stock on the S&P 500 this year. High-priced apparel simply isn’t in high demand at a time when consumers are struggling to pay bills. Lululemon’s business is still generating decent growth; it just isn’t as good as what investors have been hoping for.
In the quarter ending April 28, the company reported revenue of $2.2 billion, a 10% increase year over year. And comparable-store sales were up 7% when excluding the impact of foreign currency. But its forecast for the current quarter calls for revenue growth between 9% and 10%.
If not for the company’s elevated valuation, Lululemon’s stock might not have crumbled as much as it has this year. Amid this sell-off, the stock is now trading at a much more reasonable 24 times trailing earnings. At the beginning of the year, it was at a multiple of more than 50.
With a price/earnings-to-growth ratio of 1.2, now could be an advantageous time to buy the stock. It possesses a strong brand, and the business is still generating some growth.
Intel: Down 39%
Rounding out this list of disappointing stocks is Intel. The chipmaker’s strategy to ramp up production in the U.S. hasn’t convinced investors that it’s a profitable move in the long run.
In the most recent quarter (ended March 30), the company’s foundry unit incurred an operating loss totaling just under $2.5 billion, and its sales declined by 10% year over year.
CEO Pat Gelsinger projects that the foundry business has a tough road ahead but will break even in 2027. If that proves to be the case, then Intel could reverse these losses in the future. Without the aid of a crystal ball, however, investors are left having to decide whether or not to take a chance on Intel’s stock.
Normally, I would be inclined to say no, but I believe there’s a big incentive for the U.S. government to help support Intel to ensure there are far greater chipmaking capabilities on U.S. soil and less dependence on foreign countries.
Intel is a bit of a contrarian play, but I think it has the potential to be a good buy for the long haul. It might not recover this year, but for investors willing to absorb some risk, it can make for a good buy-and-hold investment.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lululemon Athletica. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.
Halfway Through 2024, These 3 Stocks Have Been the S&P 500’s Worst Performers was originally published by The Motley Fool
