Is it time to buy the 5 worst performing blue-chip stocks of 2021?

If you are already looking for some great New Year deals with you, there are definitely some great prospects. While the S&P 500 is on its way to end 2021 with a gain of around 22%, values ​​like AT&T (NYSE: T), Clorox (NYSE: CLX), and FedEx (NYSE: FDX) have managed to lose 22%, 18% and 12% of their value, respectively, so far this year. These aren’t the sort of performances one would expect from the most iconic outfits on the market, especially when the economy rebounds from the initial disruption of the COVID-19 pandemic.

Before you start indiscriminate spending, you might want to take a step back and assess the big picture.

Image source: Getty Images.

Mostly self-inflicted

By the way, Clorox, FedEx, and AT&T are strangely good company. Walt disney (NYSE: DIS) the stock is down 21% year-to-date. MasterCard (NYSE: MA) the stock is down by 14%. And that’s just the list of household names that have become big losers this year. Other less bright (but healthy nonetheless) tickers fell even more.

Which give?

There is no one answer. Disney shares arguably plummeted due to a heroic acceleration over the past year now that investors realize that just slapping the Disney label on a streaming service doesn’t mean hordes of new customers will subscribe to it perpetually. AT&T stocks are on the defensive because getting rid of its WarnerMedia arm is complicated and expensive. FedEx shares fell in large part due to disappointing post-pandemic growth coupled with high fuel costs. MasterCard finds that it doesn’t have quite the same name cache as it did before, especially with younger consumers opting for other types of payment intermediaries. Clorox now knows that it must innovate if it wants to retain its customers.

In short, all this weakness of these blue chip stocks makes sense.

And there’s the catch, along with the take-out, for bargain-hungry investors eyeing them: just being a blue chip is no longer reason enough to buy them blindly – or any other blue. crisps – every time they pull out. These companies have yet to perform. Many of them just don’t do it like they used to.

This is perhaps even more true today than it was a few months ago. Take FedEx, for example. Earlier in the year, inflationary pressures pushing fuel prices up were described as “transient,” meaning they would not last long. More recently, Federal Reserve Chairman Jerome Powell suggested that we stop using the word to describe global price dynamics because it implies something a little misleading. It turns out that the term “transient” meant only that higher prices would not leave a lasting scar on the economy and not that inflation would necessarily be short-lived. In the meantime, the e-commerce giant Amazon (NASDAQ: AMZN) confirmed that it is on its way to becoming the largest delivery service in the United States in the coming year, moving FedEx even more than it has already been through Amazon’s internal logistics efforts .

AT&T is another example of a once strong company that unexpectedly soured. While the dumping of most of DirecTV and the upcoming removal of WarnerMedia will take it completely out of the entertainment business it should never have gotten into, AT&T will come out of all deals more in debt than it started. . The $ 85 billion equity-and-debt deal to acquire Time Warner in 2018, for example, is now being unwound for about half that amount. AT&T can absorb the difference, but the relatively higher debt service now means the company may not be able to do other things that it would like or need to do.

While perhaps not to the same degree as AT&T and FedEx, the other big names already referenced here have encountered their own issues that won’t be easily or quickly overlooked.

Take the clue

But how do these established companies – groups typically run by industry veterans – find themselves in such difficult situations in the first place?

The best answer is philosophical. That is, most of these organizations (and many of their peers) assumed that what worked just 10 years ago will still work today. This will not be the case.

There is also a bit of pride involved.

Example (s): If AT&T had done a real assessment of the entertainment landscape six years ago before acquiring DirecTV, it might have noticed that the cable TV industry was and still is dying, however it is delivered. He could also have bought WarnerMedia with a clearer plan in mind; the studio is actually a good one. FedEx arguably should have realized that a company the size of Amazon would eventually grow to a scale large enough that setting up its own delivery network was inevitable. Mastercard authorized Pay Pal become the first name in peer-to-peer payments. MasterCard could have acquired PayPal just five years ago as part of a cash flow deal that would have cost it in the order of $ 50 billion. Rather, it allowed PayPal to double the number of annual transactions it processed in the meantime.

It’s also worth mentioning that these are the types of missteps seen in the later parts of bull markets associated with cycles of economic growth (like the one we’ve been experiencing for 12 years now). Businesses not only become complacent and misguided over time, but they also lack good ideas and prospects for growth. It often takes an economic beating with a bear market to proverbially hit that reset button.

And that’s why you shouldn’t necessarily be in a rush to pick up all the top-notch stocks here. only because they have lost a lot of ground since the end of 2020. We are in the “stock picker” phase of the bull market, which means that each of your holdings must be chosen on a case-by-case basis based on its merits rather than on its sole reputation. This year’s weakness from a top tier group of pillars may actually be the market’s subtle way of telling you something along these lines.

Oh, and if you think blue chips offer real protection against a market-wide sell-off that just might be behind schedule, think again. These tickers are hammered during withdrawals, like everything else.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

Comments are closed.