The Dow Jones Industrial Average faced a slight downturn at the end of October. Are now the right moments to invest in these struggling blue-chip stocks?
The month of October concluded on a disappointing note for investors, primarily due to underwhelming earnings reports from industry giants Microsoft and Meta Platforms. These disappointing results led to a significant drop in stock indexes on the very last trading day of the month. Additionally, an unsettling accounting scandal involving AI server manufacturer Super Micro Computer further weighed down the performance of AI-related stocks, creating a ripple effect across the market.
As illustrated in the chart below, the major stock indexes plunged into negative territory as October drew to a close, signaling concerns among investors regarding market stability.
^DJI data by YCharts
Market corrections can sometimes present unique buying opportunities. Therefore, let’s delve into the three worst-performing stocks from October and evaluate whether any of these blue-chip companies might be worthwhile investments for your portfolio.
1. Nike Faces Challenges with a 12.8% Decline
Nike‘s (NKE 1.21%) struggles persisted throughout October, as the renowned sportswear brand reported another quarter of disappointing financial results. The company is grappling with a loss of market share to emerging competitors and is actively attempting to rectify the missteps made under the leadership of former CEO John Donahoe.
In a significant leadership shift, Nike replaced its CEO in September, appointing veteran executive Elliott Hill, who has extensive experience with the company. With revenue and profits declining sharply, Nike faces a challenging road ahead to stabilize operations and return to a growth trajectory. Hill’s prior experience overseeing Nike’s product and marketplace division positions him well to potentially revive the company’s historical strengths and market presence.
One critical area for improvement is the wholesale business, which Nike had deprioritized in favor of its direct-to-consumer model. This strategic shift inadvertently provided competitors with an opening to capture market share. Additionally, Nike may benefit from a refreshed product lineup, as reliance on classic styles has not been sufficient to sustain sales growth in today’s competitive landscape.
In summary, while there is potential for a turnaround for Nike’s stock, I would prefer to see clear signs of recovery and traction in their performance before deeming it a solid buy opportunity.
Image source: Getty Images.
2. Merck’s 9.9% Decline Raises Concerns for Investors
Pharmaceutical powerhouse Merck (MRK -0.43%) was another stock that struggled on the Dow in October. The company’s shares experienced a consistent decline throughout the month, primarily driven by rising interest rates, which generally pressure dividend-dependant stocks like Merck that offers a dividend yield of 2.9%.
Despite delivering a solid earnings report towards the end of October, Merck’s stock still fell following the announcement. The company reported a 4% increase in revenue, reaching $16.7 billion, and surpassing analysts’ expectations of $16.46 billion.
The sales boost was largely attributed to Keytruda, Merck’s flagship cancer treatment that enhances immune system responses, which saw a significant 17% increase in sales, amounting to $7.4 billion. This product now constitutes nearly half of Merck’s total revenue, highlighting the company’s reliance on a single drug.
While animal health sales increased by 6%, other drug franchises such as Gardasil, ProQuad, and Januvia experienced declines, adding to the company’s growing concentration risk. Given Merck’s slow revenue growth trajectory, the case for buying its stock lacks compelling strength, even in light of last month’s pullback.
3. Dow’s 9.6% Drop Signals Need for Strategic Change
The chemical manufacturing company Dow (DOW -0.83%) is comparatively smaller within the Dow Jones Industrial Average, boasting a market capitalization of just $35 billion. In October, Dow’s stock suffered a consistent decline, ultimately losing 9.6%, marking it as the third worst-performing stock on the blue-chip index.
The reasons behind Dow’s decline are multifaceted; however, the impact of rising interest rates likely contributed, as Dow is recognized as a cyclical stock that is particularly sensitive to fluctuations in economic growth.
For the quarter, the company reported a modest 1% growth in net sales, totaling $10.9 billion, supported by an equal 1% increase in sales volume. However, pricing remained stagnant, and adjusted earnings per share dipped slightly from $0.48 to $0.47.
Over recent years, Dow has consistently underperformed relative to the Dow Jones Industrial Average and the S&P 500. The financial report did not present any significant reasons for optimism regarding a turnaround. Nevertheless, investors focused on dividends may find the current 5.7% dividend yield appealing amidst the stock’s challenges.
While the company did not provide specific earnings guidance, it indicated that the economic cycle is showing signs of improvement, with aspirations of achieving more than $3 billion in earnings by 2030.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Meta Platforms and Nike. The Motley Fool has positions in and recommends Merck, Meta Platforms, Microsoft, and Nike. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
