Is It Time to Buy September’s Worst-Performing Dow Jones Stocks?

A good stock is an even better buy at a low price. That doesn’t necessarily mean all discounted stocks are great investments, though. After all, the company in question must first be worth owning at any cost.

This truism presents something of a conundrum for investors right now. More blue chip stocks found in Dow Jones Industrial Average (^DJI 0.81%) fell last month, even as the Dow itself made progress. Are these failures buying opportunities? Or are they harbingers of things to come?

What went wrong

The three worst-performing Dow stocks since September are Merck (MRK -0.37%), JPMorgan Chase (JPM 3.55%)and Boeing (BA 2.98%)down 4.1%, 6.2% and 12.5% ​​respectively. For comparison, the Dow Jones Industrial Average gained nearly 2% last month.

BA data by YCharts

What went wrong?

For Merck, most of last month’s weakness is an extension of sales that first started in August following a weak second-quarter report that forced the drugmaker to cut its earnings guidance for the whole year. Much of September’s lethargy also stems from news that a cancer treatment from a pharmaceutical outfit Summit Therapeutics shows promise as an alternative to Merck’s flagship oncology drug, Keytruda. It’s not necessarily disastrous for Merck, but it’s a concern.

JPMorgan Chase also warned last month that net interest income would likely fall in the next fiscal year. That was before the Federal Reserve cut the federal funds rate by 50 basis points, then added that a more gradual pace of rate cuts is on the cards through at least 2026.

In other words, JPMorgan was right to suggest caution.

Boeing’s woes are much better documented. In addition to its Starliner spacecraft returning from the International Space Station without its two astronauts, labor issues and yet another apparent manufacturing defect — the rudders on the 737 MAX, this time — made a clear effect.

Are some or all of these pullbacks buying opportunities? It depends.

Weighing past, present and future

Sure, last month’s pullbacks are opportunities to step into well-established names at a discount. Every company may be facing clear challenges right now, but that’s nothing unusual. All businesses experience occasional turbulence.

From the strategic perspective of a stock picker, however, the philosophical point of view oversimplifies the art. Stock selection is best done on a case-by-case basis.

Yes, Merck is vulnerable. Cancer-fighting Keytruda accounts for nearly half of Merck’s top line. Even though Summit’s Ivonescimab appears to be a more effective therapy for lung cancer, however, Keytruda is used as a treatment for a wide range of cancers, with more in the pipeline. Indeed, while the drugmaker’s profits may be subdued for the rest of the year, that is likely already reflected in the stock’s pullback, which has pumped its well-protected dividend yield up to 2.7%.

In other words, if you were interested in Merck before, nothing significant has changed in the meantime, except for the stock price, which is nearly 20% below the analyst consensus target, by the way. The vast majority of these analysts also rate Merck stock as a strong buy.

JPMorgan’s story is different enough to matter. While it will survive the decline in net interest income, the headwind will also take an excessive toll on the company’s bottom line. You see, net interest income accounts for more than half of the bank’s profits. While this profit center doesn’t just disappear, it’s likely to be disappointing for a few years. If the global economy remains lethargic, the rest of JPMorgan Chase’s business could also be weak. Given that this stock is still near the record highs hit in August despite the recent break, there isn’t enough upside potential here to justify the risk.

As for Boeing, it’s certainly the trickiest ticker of the three to weigh right now. Overall, though, there’s just too much uncertainty here to bother with when there are so many other investment options worth owning.

Don’t misread the message. Despite the concern, Boeing’s Starliner spacecraft made it back to Earth safely. And despite the seemingly endless problems with the newest passenger jets, there’s nothing extraordinarily unusual about this latest round of potential problems. Investor sensitivity to them is simply heightened, largely due to expectations that its newly designed 737 MAX and 787 Dreamliner planes will be virtually perfect when they roll off the assembly line. However, it was never a fair expectation. Moreover, tarnished reputation or not, the imminent growth of the air travel industry means that the world simply needs Boeing aircraft. Its own outlook suggests airlines will collectively buy nearly 44,000 new planes — from somewhere — between now and 2043, for perspective.

However, this is a long-term affair with a few too many potential short-term pitfalls. Boeing may be in more of a headache than it’s worth right now.

Take (most) clues

This mindset will not always be the case. In some months (often the worst months for the stock market), the Dow’s biggest losers are buy candidates, largely because their selling is overblown.

That is not the case here, however. All three of the pullbacks mentioned above were taken out in defiance of the Dow Jones Industrial Average’s respectable gain. That means investors made a reasoned choice to send these stocks lower. While Merck is undoubtedly an exception, Boeing and JPMorgan take a cue from last month’s weakness. Now is not the time to break in. Look for something else.