Is It Time to Buy the Dow Jones’ 3 Worst-Performing February Stocks?

February was another good month for blue chip stocks, with the Dow Jones Industrial Average gaining 3% despite a sizable setback late last week. It wasn’t a great month for every Dow Jones name, however. Walmart (NYSE: WMT), Amgen (NASDAQ: AMGN), and Apple (NASDAQ: AAPL) not only lost ground but lost a lot of ground compared to their benchmark index. They fell 7.5%, 6.8%, and 8.1%, respectively.

Smart investors are now rightly wondering if these sell-offs are buying opportunities, but those same investors are also wise to wonder if this weakness is an indication of bigger problems for these companies. Here’s a closer look.

Spoiler alert: Most of the losses these three stocks suffered last week have less to do with the respective companies and more to do with January’s unusual action.

Image source: Getty Images.

Down…

Don’t misread the message. Each of these three Dow Jones names did provide investors with a reason to shed their shares.

Amgen, for instance, topped its Q4 sales and earnings estimates but undermined them with lackluster 2021 guidance. Apple’s stock struggled following news that Berkshire Hathaway‘s resident stock-picking guru Warren Buffett pared back the holding company’s big stake in the iPhone maker. Walmart shares slumped after the retailer fell short of last quarter’s earnings estimate and then warned investors that big spending plans would crimp profit growth this year.

Investors must also bear in mind, however, that all three of these stocks started February with the disadvantage of being well overbought. At one point in January, Apple was up more than 9%. Amgen netted nearly a 5% gain in January and had rallied as much as 13% before rolling over late in the month. Walmart technically lost value during January, but the stock’s 50% gain between last March’s low and November’s peak meant it was vulnerable to profit-taking.

Performance data by YCharts

And the reason Amgen and Apple did so well in January? Overzealous optimism that life would start moving back toward normal with COVID-19 vaccination seemingly making an impact. Walmart’s 2020 rally was rooted in the fact that it’s a beneficiary of the pandemic.

…but not out

Largely lost in all this noise and speculation is the fact that nothing’s really changed about the companies’ long-term prospects. These outfits are still powerhouses in their arenas with lots to look forward to.

Take Walmart’s disappointing 2021 outlook for example. Its capital expenditure plans are actually a smart investment in its people and e-commerce presence, which should start to pay proverbial dividends by 2022.

Amgen may have dialed back its outlook and culled a few cancer R&D programs, but this is the same biopharma company that owns blockbuster drugs like Enbrel, Neulasta, Kyprolis, and Epogen just to name a few. It’s not for want of things to sell, and with a pipeline of dozens of trials still underway, that’s not a risk Amgen is running anytime soon.

And Apple? It remains the biggest, most profitable, most recognized corporation in the world for a reason. It’ll be fine. As fellow Fool Trevor Jennewine suggests, Apple enjoys an uncanny ability to address any new market opportunity it wants.

So, yes, in all three cases, this makes their stocks’ recent pullbacks an opportunity to step into a company worth owning.

Exceptions to the norm

Given these big swings — oversized gains followed by last month’s sizable setbacks — it would be easy to conclude COVID-19 is still a huge factor for investors making buy and sell decisions. The difference is that a year ago investors were scrambling to find companies capable of coping with the coronavirus. Now, traders are seemingly clamoring for companies best-positioned to capitalize on the economic recovery.

Take a deeper look at the current trading environment though. Curiously, the big, pandemic-minded swings in the prices of Apple, Amgen, and Walmart are the outliers. Most stocks are moving or starting to move less erratically based on their merits without much respect for the contagion or how quickly we’ll put it in the rearview mirror. These three losers should tame themselves soon enough, putting the focus back on their long-term prospects.

It’s also worth noting that the analyst community stuck with their buy ratings for all three in February despite plenty of room and reason to impose downgrades.

Connect the dots. This recent weakness makes these Dow Jones stocks all the more attractive to newcomers.

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James Brumley has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple and Berkshire Hathaway (B shares). The Motley Fool recommends Amgen and recommends the following options: short January 2023 $200 puts on Berkshire Hathaway (B shares), short March 2021 $225 calls on Berkshire Hathaway (B shares), and long January 2023 $200 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.