The recent turmoil in the markets and the economy has exposed the fundamental weaknesses of many companies.
In many cases, last month’s losses are just a continuation of longer-term concerns about the future of these companies.
Not every stock that sells should be avoided, but February’s biggest sell-offs are big and for good reason.
In general, the strategy of buying good companies while their shares are temporarily affected is a good strategy. The market fluctuates, dragging down most stocks. In the end, however, quality prevails.
However, if you’re checking out February’s Biggest Losers looking for a bargain, don’t be too quick to act. While many of these names are well known, their decline may not last. Heavy price losses alone are not a reason to buy one of these stocks.
S&P 500 shares fall
There is no denying that these shares are selling at rock-bottom prices. Fidelity National Information Services (NASDAQ:AAPL, -2.37%) is down more than 20% over the past month, and the drugmaker viatris (NYSE:A2QAME, -2.02%) fell 26%. Consumer-facing internet companies fared even worse Metaplatforms (NASDAQ:FB, -1.43%) (the company formerly known as Facebook) and PayPal holdings (NASDAQ:AAPL, -1.41%), whose shares are down almost 33% and 35%, respectively. the actions of EPAM systems (NASDAQ: AAPL, -6.79%) ended the last month with a whopping 56% drop. For comparison: The S&P 500The index, to which they all belong, lost only about 3% of its value in February.
What went wrong so fast? Depends.
The sellout of EPAM Systems is forgivable, but not forgettable. The software company employs a large number of programmers who live in Ukraine, Russia and Belarus, a region recently rocked by military conflict. As it is unclear when hostilities will end, EPAM has withdrawn its sales guidance for 2022. Investors were understandably outraged.
As for the payment services company Fidelity National Information Services and its closely related PayPal, the explanation for their weakness is not so clear. However, it would be wrong not to point out that new competition is infiltrating every aspect of the payments business. From cryptocurrencies to AmazonPayPal and Fidelity’s moat is narrowing, from their internal platform to credit card companies now offering remittance services that allow them to bypass payments industry incumbents.
Although both stocks suffered badly over the past month, February’s weakness only continues the setbacks that began in the middle of last year.
Viatris appears to be on solid footing from just a cursory look at the company. In early February, for example, it received FDA approval for its generic version of the dry eye treatment Restasis.
However, a deeper look under the hood shows that the pharmaceutical company is on the defensive. Not only did Viatris miss fourth-quarter earnings estimates, it also intends to sell its Biocon Biologics division and plans to divest other businesses for the foreseeable future. The $3 billion price tag that Biocon is expected to reach, while fair, is also a bit suspect and unpopular with some shareholders. Biocon Biologics is one of the company’s main growth drivers. If Viatris decides to sell Biocon and other items, it could be a sign that cash is needed or sales of other products are slowing.
The superficial explanation for Meta’s recent weakness is the first decline in the number of daily users of flagship social networking site Facebook in the last quarter. The more philosophical explanation is that last quarter’s decline indicates that Facebook’s best days are behind it.
It’s not always the case, but right now
The problem is that while last month’s declines look and feel like prices tend to bounce back quickly, the causes of those pullbacks have a slightly different connotation than usual. Even so, we could experience a price increase from here, the challenges described above cannot be solved. in a few days. It could take weeks, if not months, to fix the real issues, if they can be fixed at all. Meanwhile, those S&P 500 stocks are too fragile to jump into blindly.
That doesn’t necessarily apply to all stocks right now. I warned last Wednesday that many Nasdaq-listed companies, including PayPal and Meta Platforms, are also paying a long-term price for waving goodbye to slowing growth and increased competition. But a bunch of blue chips I’m Dow Jones Industrial Average they are names worth buying into this dip, having been mistakenly swept away in the recent market-wide bear market.
When recommending an action, you should always go on a case-by-case and scenario-by-scenario basis. The current scenario doesn’t allow hard-hit stocks to enter just because they’ve been hit. There is more at stake here than just a bit of unfortunate volatility.
The article Is It Time to Buy the 5 Worst-Performing February Stocks in the S&P 500? first appeared in The Motley Fool Germany.
This article represents the author’s opinion, which may differ from the “official” recommendation position of a premium Motley Fool advisory service. Questioning an investment thesis, even one of your own, helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former head of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors.
This article was written by James Brumley and published on Fool.com on 3/5/2022. It has been translated so that our German readers can join the discussion.
James Brumley does not own any of the shares mentioned. The Motley Fool owns stock and recommends Amazon, EPAM Systems, Meta Platforms, Inc., and PayPal Holdings. The Motley Fool recommends Nasdaq and Viatris Inc.
Motley Fool Germany 2022