Most Dow stocks were winners last month, but not these.
In a tough month for tech stocks, the Dow Jones Industrial Average was actually the best-performing of the three major indexes as the blue chip index added 4.4% in July.
However, not every Dow stock was a winner last month as nine of the 30 Dow stocks finished lower. Let’s take a look at the three worst-performing Dow stocks to see if the pullback presents a buying opportunity for any of them.
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1. Merck (down 8.6%)
Pharmaceutical giant Merck (MRK 1.21%) had the biggest fall last month of any stock on the Dow. Merck finished the month down 8.6% and all of those losses came on its earnings report at the end of the month as Merck cut its full-year earnings guidance.
However, the cut in earnings-per-share guidance from $8.53-$8.65 to $7.94-$8.04 was due to a one-time charge of $1.3 billion from its acquisition of EyeBio and not due to any fundamental problems in the business. The company also reported disappointing sales of its Gardasil HPV vaccine in the key China market.
Its flagship cancer drug, Keytruda, grew sales by 16%, or 21% in constant currency, to $7.3 billion, making up nearly half of its $16.1 billion in revenue in the quarter. Merck has also made several acquisitions to beef up its product pipeline as Keytruda is likely to face price competition later this decade.
The post-earnings sell-off in Merck stock does seem exaggerated, and pharma investors would be justified to take advantage of it.
2. Microsoft (down 6.4%)
Microsoft (MSFT -2.07%) was the most valuable company on the market not long ago, but it’s ceded that title to Apple following the iPhone maker’s reveal of Apple Intelligence.
Nonetheless, Microsoft remains a behemoth with a market capitalization of more than $3 trillion. However, investors began rotating out of tech stocks and into small caps last month in preparation for lower interest rates, which are expected to bounce back as rates come down.
Microsoft delivered a solid earnings report with revenue up 15%, but growth in Azure was slightly lower than expected and its growth rate slowed modestly from the March quarter. Microsoft also fell in line with Alphabet‘s post-earnings slide in July and as part of a broader sell-off in tech stocks.
While Microsoft shares still look pricey, the business is executing effectively, delivering solid growth on the top and bottom lines, and continues to be a leader in artificial intelligence. Buying on pullbacks seems like a good strategy here.
3. Walt Disney (down 5.6%)
Finally, Walt Disney (DIS -3.74%) had another disappointing performance in July as the entertainment giant is trading not far from 10-year lows.
Pessimism about both the streaming industry and theme parks weighed on Disney stock last month even though the company has yet to report quarterly earnings. Comcast reported a 10% drop in theme park revenue, spooking Disney investors, and it also said that streaming subscribers at Peacock fell.
Disney’s slide came off a strong box office performance from titles such as Inside Out 2 and Deadpool & Wolverine, showing a key business segment is finally coming back to life after several years of weakness during the pandemic and beyond.
Disney also retained its rights to carry NBA games in the new contract with the basketball league. Overall, there were no red flags for Disney this month, but the company will need to show investors solid results in its earnings report next week.
The stock is cheap enough to be a buy, but Disney has disappointed time and again during the streaming era. The next year will be critical for the company as CEO Bob Iger wants to retire with the business clearly on the right path, rather than struggling to transition to new platforms.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Walt Disney. The Motley Fool has positions in and recommends Alphabet, Apple, Merck, Microsoft, and Walt Disney. The Motley Fool recommends Comcast and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
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