The Dow Jones Industrial Average (DJIA) index was pushed into the correction territory earlier this year by recent macro headwinds, including multi-decade high inflation, worries about the Fed’s new, hawkish stance, volatile oil prices, worsening supply chain disruptions, and escalating tensions between Russia and Ukraine. However, the U.S. economy continues to be in recovery mode, as evidenced by the recent decline in the unemployment rate and easing supply chain constraints. As stock markets have stabilized, the Dow Jones Industrial Average has gained 4.3% over the past month.
Despite the recovering economy and bullish investor sentiment, certain Dow Jones stocks have been underperforming compared to the index. These stocks are expected to remain under pressure in the near term due to their companies’ deteriorating fundamentals. Given their weak financials and history of huge losses, these stocks possess bleak growth potential and are best avoided now.
Given these factors, we think it could be wise to avoid the fundamentally weak Dow Jones stocks The Walt Disney Company (DIS), The Home Depot, Inc. (HD), and Verizon Communications Inc. (VZ).
The Walt Disney Company (DIS)
Leading entertainment company DIS operates through two segments: Disney Media and Entertainment Distribution; and Disney Parks, Experiences, and Products. The Burbank, Calif.-based company operates television broadcast networks and engages in film and episodic television content production and distribution. In addition, DIS operates theme parks and resorts. It also offers direct-to-consumer streaming services.
Last month, DIS announced that Disney+ will expand its offerings to a broader audience by introducing ad-supported subscriptions in addition to its option without ads, beginning in the U.S. in late 2022, with further plans to expand internationally in 2023. This initiative is expected to take some time to deliver gains to the company.
In its fiscal year 2022 first quarter, ended Jan. 1, 2022, DIS’ costs and expenses increased 22.7% year-over-year to $19.62 billion. The company's net income from continuing operations attributable to noncontrolling interests declined 4,700% from the year ago amount to negative $48 million. DIS' loss per share attributable to Disney from discontinued operations came in at $0.03, registering an increase of 200% from the prior-year period.
The stock declined 16.5% in price over the past three months and 29.8% over the past year. DIS closed yesterday's trading session at $131.87.
DIS' POWR Ratings are consistent with this bleak outlook. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
DIS has a D grade for Value and Quality. Within the F-rated Entertainment - Media Producers industry, it is ranked #11 of 20 stocks.
To see DIS' POWR Ratings for Stability, Growth, Momentum, and Sentiment, click here.
The Home Depot, Inc. (HD)
HD in Atlanta, Ga., operates as a home improvement retailer. The company runs Home Depot stores, which sell home improvement products, building materials products, and repair and operations products. In addition, it offers tool and equipment rental services. The company serves homeowners, professional renovators, general contractors, maintenance professionals, and specialty tradesmen.
HD's total operating expenses increased 4.3% year-over-year to $7.04 billion in its fiscal 2022 fourth quarter, ended Jan.30, 2022. HD’s interest and investment income decreased 80% year-over-year to a negative $18 million. Its cash and cash equivalents came in at $2.34 billion for its fiscal year ended Jan. 30, 2022, registering a 70.3% decline year-over-year.
Analysts expect HD's revenue to be $36.45 billion for its fiscal year 2023 first quarter, ending April 30, 2022, representing a 2.8% decline from the prior-year period. The Street expects the company's EPS for the current quarter to come in at $3.69, representing a 4.4% decline year-over-year.
Shares of HD declined 4.4% in price over the past month and 27.1% year-to-date. It closed yesterday's trading session at $302.75.
HD's POWR Ratings reflect its poor prospects. It is ranked #19 of 64 stocks in the Home Improvement & Goods industry.
To see additional POWR Ratings (Momentum, Growth, Stability, Value, Quality, and Sentiment) for HD, click here.
Verizon Communications Inc. (VZ)
VZ provides communications, technology, information, and entertainment products and services worldwide. The New York City company operates through two segments: Consumer and Business. VZ offers postpaid and prepaid service plans, wireless equipment, wireless-enabled internet devices, and residential fixed connectivity solutions. In addition, it provides network connectivity products, data security services, and more.
In its fiscal year 2021 fourth quarter, ended Dec. 31, 2021, VZ’s service and other revenues declined 5.4% year-over-year to $26.74 billion. The company’s cash and cash equivalents decreased 86.8% year-over-year to $2.92 billion for its fiscal year 2021, ended December 31. VZ’s total current assets declined 32.7% year-over-year to $36.73 billion. Its net cash used in investing activities grew 185.6% from the prior year to $67.15 billion.
The$1.37 consensus EPS estimate for its fiscal year 2022 second quarter, ending June 30, 2022, represents a marginal year-over-year decline from the same period in 2021.
VZ shares have declined marginally in the past month and 8.4% in price over the past year. It closed yesterday's trading session at $52.67.
VZ's POWR Ratings reflect this bleak outlook. The stock has a D grade for Sentiment. It is ranked #9 of 19 stocks in the F-rated Telecom - Domestic industry.
Click here to see VZ's POWR Ratings for Quality, Value, Growth, Stability, and Momentum.
DIS shares were trading at $131.88 per share on Friday morning, up $0.01 (+0.01%). Year-to-date, DIS has declined -14.86%, versus a -5.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
Why You Should Continue to Avoid the 3 Underperforming Dow Jones Stocks: Disney, Home Depot, and Verizon StockNews.com
