Downed stocks are often attractive as an investment, especially when they are blue chips. Quality always shines through (in the end). Investors are thinking of entering the Dow Jones Industrial Average’s the worst performing components in July right now, however, may want to think twice – and therefore decide not to.
These stocks are down for bigger reasons than slight volatility, untimely bad luck or instinctive reactions from investors. Now in the sixth month of the invasion of COVID-19 in the United States and in the ninth month since it was first recognized as a deadly disease, it is starting to become clear that some companies face headaches far beyond the temporary act from the coronavirus.
Three losers from the DJIA
If you’re wondering, the DJIA tickers in question are Intel (NASDAQ: INTC), Boeing (NYSE: BA), is Raytheon Technologies (NYSE: RTX) – all the well-founded stalwarts that will surely be in a few years, but also all the names that have been sold for a reason. That is, their awakening is not exactly imminent.
Intel’s setback was largely driven by another series of bad family news. It is experiencing further research and development delays that have been partially triggered by the coronavirus epidemic this time.
The tech company has repeatedly been plagued by problems with its 7-nanometer (nm) CPU foundry technology, while its rival CPU maker Advanced micro devices already sells 7nm processors. It is not yet clear when Intel could hit the market with a competing chip, as the company again warned in its recent second quarter conference call that its 7nm CPU timeline had been extended. COVID-19 has made it difficult to do much on this front. That news alone was enough to overturn the warehouse, but only a few days later, the news that the former chief engineer Murthy Renduchintala would have left those bearish flames fan only.
All in all, Intel stocks fell 20% in July, with investors perhaps now wondering if there is a much bigger fundamental flaw in the way the company planned and managed product development. It is much more difficult to solve than a simple retouch.
Boeing hasn’t slipped nearly as much as Intel, but the loss of 11% of its stock last month is barely modest, given the Dow’s gain of 19% for July.
The company’s relatively new 737 MAX jets were advertised as a novelty. A couple of catastrophic incidents shortly after entering service in 2019, however, forced most of the world’s airspace regulators to ground the plane until its problems were resolved. Boeing engineers appear to have made measurable progress, with the FAA approaching a new aircraft airworthiness assessment in 2020.
However, a new certification may not be enough. Airlines are experiencing a weakening demand for air travel thanks to COVID-19, and it is not inconceivable that many are still worried that there may be something else that should not be done with the 737 MAX yet. Between the two opposing winds, over 350 orders for the plane were canceled in the first half of this year. There is no clarity on when or even if those canceled orders will be replaced.
Lastly, Raytheon’s 10% drop in July is not heartbreaking, but certainly not ignorable.
To his credit, the company outperformed second quarter earnings and revenue estimates when numbers were reported Tuesday. The problem is that those numbers were falling on an annual basis, reminding the market that the same weakened demand for Boeing jets also means a decrease in the demand for related aeronautical components that Raytheon produces.
Read between the lines
In some respects, being an investor in March was easy: let’s assume that all companies will be hit hard. The sell-off at the end of February / beginning of March was rather indiscriminate, dragging almost everything down. In a similar sense, the rally from low to current March levels was also quite radical, bringing most stocks and most investment categories higher. It was difficult not to do well, no matter how you played the market.
As July turns into August, clarity is starting to bloom.
Take a closer look at why these three names suffered last month, while most other Dow Jones titles haven’t. Each company had difficulties when the coronavirus was new, including these three. However, only a few companies will continue to struggle following the pandemic. Air travel seems to be one of those industries destined for prolonged turbulence. Even though COVID-19 seems to be fading away, the public may remain concerned about sitting in a limited space for so long with so many other people. Passing through an airport terminal is also not exactly a germ-free experience. The headwind of the plane may last a while. This is the chain effect of the epidemic.
As for Intel, coronavirus did not cause its problems, but it certainly exposed and exacerbated them. Its research and development process will return to normal at some point in the near future, but Intel’s “normal” isn’t necessarily exceptional. Its new leadership structure will take time to restore, but time is the only thing Intel doesn’t really have to offer.
However, it’s not just Raytheon, Intel and Boeing. Unlike most points between March and now, investors now know why they are offering a lower offer or shipping. It’s not just panic or fear of getting lost. If a stock is falling, it is probably falling for a reason. It would be wise to start taking market suggestions instead of simply buying the jumps and selling the snags. We are no longer in that kind of volatile environment, easily reversed.