Is It Time to Buy the Dow Jones' 3 Worst-Performing Stocks of 2022?

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In 2022, the Dow Jones Industrial Average (commonly referred to as the Dow 30 or just “The Dow”) outperformed other major indexes like the S&P 500 and Nasdaq-100 by quite a bit. Although it was down 8.9% for the year, that was still better than the S&P’s 19.4% loss and far better than the Nasdaq-100’s 33% decline.

While the Dow overall held up better, some individual companies in the index had an atrocious year, with Intel (INTC 4.25%), Salesforce (CRM 3.06%), and Walt Disney (DIS 2.18%) taking up the bottom three slots in the list. Disney was down almost 44%, Salesforce fell 47.8% in 2022 and Intel dropped 48.7% for the year. Can this trio turn it around in 2023? Or are they destined to remain the worst performers in the Dow? And is it time to buy either of these three stocks? Let’s take a closer look.

1. Intel

Intel gets the designation as the worst Dow Jones stock in 2022 and, if you look at Intel’s revenue and earnings per share (EPS) over the past three years (especially in 2022),  it’s easy to see why:

INTC Revenue (TTM) data by YCharts.

Both metrics trended in the wrong direction in 2022, raising the question: Will this continue? According to Wall Street analysts, the answer is yes. In 2023, the average revenue guidance is for a 4.1% shrinkage, and earnings per share are expected to fall from $1.96 to $1.88. As to what caused this decline, Intel points to weakening consumer demand for its products. However, its “datacenter and AI” (artificial intelligence) segment was also down in its latest quarter, so the company may be experiencing other issues.

Intel management did enact some serious cost-savings measures, which should save it $3 billion in 2023 and $8 billion to $10 billion by 2025. Even for a company with trailing 12-month expenses of $61.5 billion, that level of savings should help the bottom line.

What the market is trying to determine is whether the demand slowdown was caused by consumers’ tightening their belts in the face of a possible recession or by better competition. Because of this uncertainty, the market is pricing Intel at a dirt cheap 13.4 times forward earnings (which uses 2023 projections). That stock price drop has resulted in the stock’s dividend yield rising to an attractive 5.6%.

The lower valuation and the higher yield make Intel stock tempting for investors. But those investors should be aware that this decline may be more than a demand problem, in which case the stock could see a further downside.

2. Salesforce

Salesforce is a software-as-a-service (SaaS) business. If you follow any software stocks, you know 2022 was a bad year for the sector. The big reason for the tumbling valuations in the sector was rising interest rates making efforts to grow a company more expensive. Salesforce started the year trading at around 10 times sales, but it ended nowhere near that:

CRM PS Ratio data by YCharts.

At 4.4 times sales, Salesforce stock is trading as cheap as it was at only one other time as a public company: the Great Recession in 2008-2009. The thing investors need to remember here though is that the economy isn’t nearly as bad as it was back then and Salesforce’s business is still growing, if at somewhat lower rates:

Metric Q1 FY 2023 Q2 FY 2023 Q3 FY 2023
Revenue growth (YOY) 24% 22% 14%
Operating margin 0.3% 2.5% 5.9%

Data source: Salesforce. Note: Salesforce’s Q1 ended April 30, Q2 ended July 31, and Q3 ended Oct. 31. YOY = year over year.

Also, while many SaaS companies’ saw their losses widen throughout 2022, Salesforce’s didn’t. The business is on track, with revenue expected to grow 11% in 2023 and annual EPS also expected to rise from $4.93 to $5.65.

Salesforce is a company investors should feel confident buying in 2023. I wouldn’t be surprised if it’s one of the top-performing Dow stocks and its P/S should return to its historical average of around 8.7.

3. Walt Disney

Disney is a name few investors expected to be on the worst-performing list. Unfortunately, Disney had a rough end to 2022, with the board ousting CEO Bob Chapek and bringing back longtime CEO Bob Iger in hopes he can get things back on track. While there were multiple reasons for this decision, a big reason was concern about how Chapek was handling the company’s most talked-about product: Disney+.

Under Chapek’s leadership, the streaming service’s content model switched to a quantity-over-quality approach, which didn’t attract a lot of new subscribers and chased other subscribers away. Additionally, Disney+ hiked subscription prices 37% earlier this year to $10.99 per month from $7.99 per month. The $7.99 monthly rate is now what subscribers of the ad-supported tier pay. Still, the price hike and addition of an ad tier didn’t stop Disney+ from adding more subscribers in fiscal 2022’s fourth quarter (which ended Oct. 1).

As with Salesforce, Disney’s revenue was up — 9% in Q4 and 23% in fiscal 2022. However, adjusted earnings were flat in Q4, dampening an otherwise strong 58% rise for the year. In fiscal 2023, analysts expect earnings and revenue to rise, so the business remains in fine shape.

Disney stock trades at a decade-low price-to-sales ratio of 1.9, and with Iger back at the helm, it would be foolish to bet against Walt Disney’s stock in 2023.

Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel, Salesforce, and Walt Disney. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel, long January 2024 $145 calls on Walt Disney, long January 2025 $45 calls on Intel, short January 2024 $155 calls on Walt Disney, and short January 2025 $45 puts on Intel. The Motley Fool has a disclosure policy.