Is It Time to Buy May's Worst-Performing Dow Jones Stocks?

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The Dow moved higher in May, but these stocks were still losers.

After a disappointing April, stocks bounced back in May, fueled by strong corporate earnings reports and signs that the Federal Reserve still planned to lower interest rates later this year. As you can see from the chart below, all three major stock market indexes finished higher.

^SPX data by YCharts

The Dow Jones Industrial Average was the worst performer of the three major indexes. It fell behind after Nvidia delivered another strong earnings report, giving the Nasdaq and S&P 500 a boost, but not the Dow since Nvidia isn’t a member of the blue-chip index.

While the Dow Jones finished the month higher, not every stock in the index was a winner. Let’s take a look at the three worst Dow performers to see if any are worth buying now.

Image source: Getty Images.

1. Salesforce (down 12.8%)

In many ways, Salesforce (CRM -0.74%) was the original cloud software stock, pioneering a new industry that has now become mainstream in the tech sector.

However, Salesforce’s growth rate has slowed rapidly since the pandemic-driven software boom, and the company’s first-quarter earnings report released at the end of May showed that Salesforce’s momentum continues to fade.

Revenue rose 11% in the quarter to $9.13 billion, beating estimates, but the company’s guidance calls for second-quarter revenue growth of just 7% to 8%, and it sees full-year revenue of 8% to 9%.

With numbers like those, Salesforce may be losing its status as a growth stock. The company did make progress on cost-cutting, driving profits significantly higher, but investors should wait to see stronger revenue growth before buying the stock.

Additionally, Salesforce has a track record of overpaying for acquisitions, like Slack, which cost it nearly $30 billion, and that could lead to asset impairments down the road.

2. Walt Disney (down 6%)

Investors don’t seem to know what they want from Walt Disney (DIS 0.55%). The entertainment giant finally posted a long-awaited profit in the direct-to-consumer streaming segment in the fiscal second quarter, which it reported in early May, but the stock still plunged on the news.

Instead of investors saluting Disney for finally achieving that goal, the stock fell as management said it expected just flat profit growth from the key theme parks division in the current quarter, noting that travel trends were moderating after the height of the pandemic.

Disney seems to get regularly punished for its conglomerate business model as a single flaw in any of its segments can lead to a sell-off, but that model can also be a source of strength when done right.

The company finally seems to be entering the closing stages of a years-long transition from linear media to streaming, which could be completed when the company launches a streaming version of its flagship ESPN network next fall. The streaming profitability in the quarter is clearly a positive sign, but it will still take time for it to replace the lost profit from its linear media division.

Investors should expect Disney stock to remain volatile, but the sell-off looks like a good buying opportunity as Disney is likely to emerge from the streaming transition with its leadership of the entertainment industry still intact.

3. McDonald’s (down 5.7%)

Unlike Salesforce and Disney, McDonald’s (MCD 1.14%) stock didn’t fall on its earnings report last month. The company actually reported first-quarter earnings at the end of April with the stock essentially flat on the news.

Instead, the stock seemed to fall on a number of different news items, the most prominent of which was reports that consumers are cooling on fast-food purchases due to inflation. In fact, a new price war could be emerging in fast food as Burger King just launched a $5 meal ahead of the expected introduction of one by McDonald’s.

Additionally, McDonald’s China said it was addressing concerns that it sold expired food, which could be a stain on its reputation in a key growth market.

Finally, McDonald’s USA President Joe Erlinger pushed back against inaccurate reports of price increases on social media, including that prices on some items had doubled.

With last month’s sell-off, McDonald’s is now trading near 52-week lows and a price-to-earnings ratio of 22, which seems like a decent price for this reliable blue-chip stock that’s still putting up solid growth numbers.