Is It Time to Buy the S&P 500's 3 Worst-Performing December Stocks?

A bad year for the S&P 500 ended badly. The major index finished 2022 down 19.4%. It’s fallen by that much only seven times before. The S&P 500 also delivered a dismal performance in December, sinking by 6%.

While there were lots of stocks in the index that slid in the last month of the year, some were especially big losers. Is it time to buy the S&P 500’s three worst-performing December stocks?

December’s biggest duds 

Tesla (TSLA 5.12%) ranked by far as the worst S&P 500 stock last month. Shares of the electric vehicle (EV) maker plunged nearly 37% despite rebounding somewhat in the final week of the year.

This decline capped off a truly disappointing performance for Tesla in 2022. The stock finished the year down a whopping 65%.

There wasn’t much electricity for NRG Energy (NRG 0.50%) stock, either. Shares of the power provider sank more than 24% in December. 

However, NRG beat the S&P 500 throughout much of 2022. The utility stock was even in positive territory year to date in late November.

Norwegian Cruise Line Holdings (NCLH 5.06%) stock delivered a slightly worse return in December than NRG did. Shares of the cruise ship operator fell 26% during the month.

While Norwegian exited 2022 down close to 40%, its drop at the end of the year slammed the breaks on solid second-half momentum. Between early July and the end of November, the cruise line’s share price soared 45% higher.

Behind the declines 

What happened with these three stocks in December? There were different factors behind the declines.

For Tesla, CEO Elon Musk’s fixation on Twitter became a distraction. The Wall Street Journal reported production shutdowns at the company’s plants in China. It didn’t help matters that a top analyst slashed their price target for Tesla by $100, causing the stock to hit another two-year low.

NRG Energy stock plummeted after announcing plans to acquire Vivint Smart Home for $2.8 billion. Some analysts significantly cut their price targets for the stock on concerns that the deal presents key execution risks. 

Norwegian’s lackluster performance stemmed mainly from investors’ disappointment with the financial shape of one of its rivals. Carnival announced that it expected to continue losing money in 2023 during its fourth-quarter update on Dec. 21, 2022. This outlook hurt several cruise stocks, including Norwegian. 

Are they buys now?

Warren Buffett doesn’t buy any stock unless it passes one key test. The stock must be available at a reasonable price compared to the lower end of the estimated earnings range for the business over the next five-plus years. Do any of these three December losers pass this Buffett test? 

I think there are far too many uncertainties for the cruise line industry to be able to evaluate Norwegian’s earnings over the next few years. As a result, it’s basically impossible to know if the stock is attractively priced right now.

NRG Energy’s profits are headed in the wrong direction. I’m not sure if the company’s acquisition of Vivint is a smart move at this point. Again, it’s simply too difficult to project NRG’s earnings for the stock to be a good pick using Buffett’s approach.

That leaves Tesla. The EV stock has plunged farther below its previous high than ever before. For some investors, that makes Tesla look dirt cheap. And maybe it is.

I have no doubt that the market for electric vehicles will pick up significantly over the next decade. What I’m unsure about, though, is how much increased competition will impact Tesla as EV adoption grows. 

Of these three beaten-down S&P 500 stocks, I think that Tesla is the best pick. However, I’m simply not confident enough to project the company’s earnings going out beyond the next five years. I can understand why some investors could be eager to scoop up shares right now, but I’m staying on the sidelines with the stock — just as Buffett is.