Is it time to buy the 3 worst performing August stocks on the S&P 500?

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THEDo you like good deals? Of course, we all do, especially when those great deals come in the form of stocks that have been “on sale” as a result of a massive sell-off. However, not all names that dive are necessarily a good deal to close. Sometimes these stocks sold for a good reason.

With that as a backdrop, here’s a look at last month’s biggest losers among the S&P 500‘s (SNPINDEX: ^ GSPC) constituent companies. These three names are all cheaper now than they were in July, but are they really worth entering at these discounted prices?

The weak links of the S&P 500

Most months, the biggest losers in the market tend to illustrate a larger theme. However, August was an exception to this norm. Big laggards in last month’s S&P 500 are industrial tech equipment IPG Photonics (NASDAQ: IPGP), pharmaceutical company Perrigo (NYSE: PRGO), and car manufacturer General Motors (NYSE: GM), down 22%, 15% and 14% (respectively) from the S&P 500’s nearly 3% gain in August. All have tumbled for relatively unique reasons that must be considered on a case-by-case basis.

The setback for IPG Photonics largely materialized in a single day – the day it released second quarter numbers below both upper and lower estimates despite improving year over year. But, the crux of the downturn is likely due to the company’s lackluster forecast for the current quarter. IPG expects revenue of $ 350 million to $ 380 million for the three-month period ending in September, but says it will only generate profits of $ 1.10 to $ 1.40 per share. Analysts had modeled an average profit of $ 1.45 per share, suggesting that the costs of manufacturing and marketing its laser equipment in today’s environment are higher than investors thought.

Image source: Getty Images.

Perrigo’s August pullback also took place within one day, and like IPG’s, the pullback came in response to its second quarter shortfall. The company’s operating profit of $ 0.50 per share fell short of the $ 0.60 investors expected, and was down from the comparison of $ 0.59 per share a year ago. year. The missed wins, however, were for a most curious reason. In the global effort to avoid contracting the coronavirus, people who distance themselves socially also catch fewer colds, which is slowing sales of Perrigo’s cold and flu treatment products.

Finally, General Motors has fallen over the past month. Like Perrigo and IPG Photonics. however, the knee-jerk response to last quarter’s results was the worst day of liquidation.

The numbers themselves are actually quite solid. Revenue of $ 34.2 billion and earnings of $ 1.97 per share, both up from last year’s second quarter numbers, exceeded most expectations. For good measure, GM has raised its operating profit outlook for the full year to somewhere between $ 5.40 and $ 6.40 per share. What the automaker has failed to do, however, is convince investors that its challenges caused by the global chip shortage will abate anytime soon.

To buy or not to buy?

Okay, but which – if any – of those dips are wandering dips that end up buying opportunities?

Perrigo is a compelling prospect for less aggressive investors looking for a bit more predictability, and perhaps looking for a decent dividend to boot. The common cold may be on the defensive right now, but once the pandemic is put in the rearview mirror, people are likely to lower their guard against germs again. New investors will step in with a return of just under 2.4%. Also, keep in mind that Perrigo is not just an over-the-counter cold and flu treatment, it offers a full line of self-care products for consumers.

IPG Photonics is another segment of the S&P 500 worth buying after its recent pullback, which capped a decline of nearly 30% from its January peak. The profit outlook for the current quarter is not exciting, but take a step back and look at the big picture. Both this and next year’s results are expected to grow steadily. Its goods are in perpetual demand.

As for General Motors, the company will survive. Indeed, its big foray into electric vehicles should restore GM’s relevance to consumers in a much needed way. But, there are also major issues to be dealt with here, not the least of which is perceived.

Investors were already worried that he was behind on the electric vehicle front and forced to catch up. Now he is seen as a major victim of supply chain issues that may not end anytime soon. Whether or not this assessment is targeted is not really the question. As long as the market feels General Motors is limping (a perception exacerbated by a resurgence of the COVID-19 pandemic), the stock remains too vulnerable to own. This is especially the case in light of the 250% gain shares achieved between last year’s low and the June peak. Most of that gain is still intact, leaving GM stocks subject to further profit taking.

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James Brumley has no position in the stocks mentioned. The Motley Fool recommends IPG Photonics. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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