After outperforming the two other major indexes in 2022, the Dow Jones Industrial Average (DJINDICES: ^DJI) lagged behind the pack in January.
Though the Dow gained in January, it only rose 2.8% last month since it doesn’t have as much exposure to tech stocks as the S&P 500 or the Nasdaq.
Taking a cue from the Dogs of the Dow strategy, let’s see if any of the Dow’s weakest performers in January are worth buying today.
1. Johnson & Johnson (down 7.5%)
Johnson & Johnson (NYSE: JNJ) is as stable of a blue chip stock as they come, but the healthcare giant faced several negative headlines in January that pushed its shares lower, and its earnings report failed to impress the market.
First, the company cut production of its COVID-19 vaccine due to weak demand, and it canceled manufacturing agreements with producers. Along with partners, it also canceled its phase 3 Mosaico clinical HIV vaccine trial, because the drug was not effective in preventing HIV infection.
Johnson & Johnson then reported fourth-quarter earnings that were mostly in line with estimates, and it called for 4% revenue growth in 2023, excluding the impact of the COVID vaccine. Investors shrugged off the report and the stock was flat on the news.
Finally, the stock fell another 4% on Jan. 30 after a court rejected its plan to push 38,000 talc lawsuits into a bankruptcy court. J&J will appeal the ruling. The company had planned to settle the lawsuits for $2 billion. A Wells Fargo analyst speculated the litigation could now cost Johnson & Johnson up to $10 billion, though they deemed it “manageable” for the healthcare giant.
Like other stocks that are considered “safe”, Johnson & Johnson outperformed last year, but the shares are still attractively priced at a forward price-to-earnings ratio of 16, especially considering its recession-proof status at a time when the economy still looks uncertain.
Investors who buy the stock should also benefit from the spinoff of its consumer goods division, Kenvue, later this year.
2. Procter & Gamble (down 6.1%)
Another classic blue chip stock, Procter & Gamble (NYSE: PG) is the maker of household staples like Gillette razors, Tide detergent, and Pampers diapers.
P&G’s decline last month came primarily after its fiscal 2023 second-quarter earnings report, which revealed the company is struggling with inflation and higher input costs.
While results were in line with analysts’ expectations, CEO Jon Moeller said the company faces a “very difficult cost and operating environment.” P&G also seemed to reach the limit of its price hikes in the quarter as volumes declined in every product category, and overall sales volume fell 6% year over year. That was partly due to challenges in China, and the company said it continued to gain market share in the U.S. But the numbers show its growth could be limited in the coming quarters, especially after adjusted earnings per share fell 4% in the quarter.
Management did raise its revenue guidance slightly, calling for a 4% to 5% organic revenue increase, but it sees earnings-per-share growth coming in at the lower end of its flat to 4% range.
Procter & Gamble stock now trades at a forward P/E of 24, making the shares look pricey for a company expecting little to no earnings growth, especially compared to beaten-down tech stocks that are even cheaper.
3. UnitedHealth (down 5.8%)
Finally, another leading healthcare stock wraps up the list with UnitedHealth (NYSE: UNH) finishing the month down 5.8%. It’s not surprising the three worst performers on the Dow were all defensive stocks, as investors rotated out of these names and into growth stocks in January.
UnitedHealth actually fell sharply to start the month, declining 7% over the first three days of January, though there was no specific news out on the company.
The following week, the health insurance giant reported fourth-quarter earnings that were largely in line with analysts’ expectations. The company edged out estimates on its top and bottom lines, but its earnings guidance for the year was below Wall Street’s consensus target.
Revenue jumped 13% in the quarter as it saw double-digit growth in its two largest businesses: Optum, its pharmacy benefit manager, and UnitedHealth. Looking ahead to 2023, the company called for adjusted earnings per share of $24.40 to $24.90, which was below the consensus of $24.94 but still reflects a 10% to 12% increase in earnings.
Given that growth rate, UnitedHealth looks reasonably priced at a forward P/E of 19, and the stock is a good pick if you’re worried the economy will sink into a recession this year.
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Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Jeremy Bowman has positions in Wells Fargo. The Motley Fool recommends Johnson & Johnson and UnitedHealth Group. The Motley Fool has a disclosure policy.