Should the Purchase of Three of the S&P 500's Least Successful Stocks in 2024 Be Considered?
The S&P 500 features some of the world's top companies. Among the index's underperformers this year are notable businesses, potentially undervalued due to their poor performance.
The index has risen 11% year to date, yet shares of Intel (-1.16%), Starbucks (-0.74%), and Tesla (-3.25%) have plummeted by 39%, 19%, and 29%, respectively. We'll examine the reasons behind their downturns and discuss whether investors should seize the opportunity to buy more at these lower prices.
1. Intel
The surging demand for processors utilized in artificial intelligence (AI) attracts investor interest in semiconductor companies, but Intel has been lagging behind its competitors. The company fell short of Wall Street's revenue expectations last quarter, resulting in a staggering 39% year-to-date decline in its stock. Although the shares appear enticing at these lower prices, Intel might confront challenges combating competing data center suppliers, potentially limiting the stock's upward potential.
Intel remains a major provider of central processing units (CPUs) used in consumer PCs. However, its focus on CPUs is a liability as data centers divert more investments to graphics processing units (GPUs) essential for AI training.
Intel's ambition to build a U.S.-based manufacturing base and a rich history of profit-making and dividend payouts for shareholders could work in its favor. But its investment in self-manufacturing chips for other companies, in addition to networking and software solutions for AI, might stretch its resources too thin.
These investments have hurt Intel's bottom line, with trailing-12-month net income dropping to $4 billion over the past year from $24 billion several years ago. Furthermore, Advanced Micro Devices (AMD) has made significant strides in taking market share from Intel, particularly in consumer PCs and servers, thanks to AMD's initiatives in delivering robust processing power at competitive prices.
Investors might want to steer clear of the stock for now. Although Intel could potentially boost its revenue as the semiconductor industry grows, AMD's growing market share could continue to hinder Intel's ability to provide meaningful returns for shareholders.
2. Starbucks
Starbucks is another well-known company facing investor apathy. Its stock has tumbled 19% year to date, offering investors a tempting deal.
Starbucks shares saw a decline after a weak earnings report in April. Revenue slipped slightly year over year in its second fiscal quarter, due to a 3% decrease in comparable-store sales in North America and an 11% fall in China. The poor earnings performance also put pressure on the company's profitability.
Unlike Intel, Starbucks' struggles are not due to external factors, but rather reflect dampened consumer spending, as other retail companies have also reported weak sales recently.
Starbucks is an established consumer brand, with over 38,000 stores worldwide, leaving room for further growth. However, its vast network of stores might make it more susceptible to occasional economic downturns.
Starbucks' value is evident in its dividend yield. The company pays a quarterly dividend of $0.57 per share, which means a dividend yield of 2.92%, more than double the S&P 500 average. This represents a great investment opportunity for a company expected to grow its earnings – and dividend – in the coming years.
3. Tesla
Tesla's shares have fallen 29% this year. As the electric vehicle (EV) leader, its first-quarter revenue decreased by 9% year over year, which is not typical for this high-energy company. Tesla faced disruptions in operations during the quarter, including an arson attack at one of its Gigafactories, production challenges with the updated Model 3, and weak near-term demand for EVs.
Analysts predict Tesla's revenue will only increase by 2% this year, limiting the stock's upside potential. However, the stock's high valuation, with shares trading at a forward price-to-earnings ratio of 69, suggests that investors believe Tesla's long-term growth isn't waning.
Tesla remains a stock worth owning due to its potential to have millions of cars on the road in the upcoming years. A key driver for Tesla will be the introduction of its upcoming Cybercab robotaxi in August. Tesla represents not just the expansion of the EV market but also the embracing of autonomous vehicles in the transportation industry.
Tesla's edge lies in its developing AI capabilities. The EV manufacturer's self-driving car software still has room for improvement, but it is making rapid strides to enhance the capabilities of its driverless system. Tesla has already installed 35,000 Nvidia H100 chips for AI training and aims to reach 85,000 by the end of this year.
Tesla is essentially an AI software company alongside being an EV manufacturer. Currently trading at $13 billion in profits, investors are getting better value for Tesla stock, which should result in better returns when the business begins growing again.
- Individuals looking for investment opportunities in the tech sector might consider purchasing shares of Intel, despite its 39% year-to-date decline, as its strong presence in the CPU market and potential in AI could offer future growth prospects. However, investors should exercise caution due to the company's challenges competing with data center suppliers and the strain on resources caused by its various investments.
- In the finance world, Starbucks' poor performance this year, with a 19% year-to-date stock decrease, presents an opportunity for investors seeking value in a well-established brand. While the company's weak earnings report and declining comparable-store sales are concerning, Starbucks' large global presence and attractive dividend yield make it an appealing investment for those who believe in the company's growth potential in the long term.
