Despite the recent market turbulence, it was a good year for the stock market overall. But the Dow Jones Industrial Average is up just 2.4% year to date (YTD), lagging behind Nasdaq CompositeThe YTD return is almost 7% and the S&P 500That’s an increase of almost 8%.
The Dow Jones contains many industry-leading blue-chip companies. However, there are plenty of Dow stocks that are down this year, and some particularly big names that are just 6% away from their 52-week lows – including Apple (NASDAQ:AAPL), Nike (NYSE:NE)And UnitedHealth (NYSE: UNH). Here’s why all three dividend stocks are in the red, but why they might be worth buying now.
From industry leader to industry underperformer
Apple is probably the most surprising stock on this list. It makes up over 7% of the Nasdaq Composite. And although Apple weighed on the index, the Nasdaq Composite hit an all-time high on March 21 and is still well up for the year. Investors are used to Apple leading the market rather than lagging behind.
The underperformance is even more dramatic when you look at the technology sector. Apple accounts for 19.2% of this Technology Select Sector SPDR Fund, an exchange-traded fund that reflects the performance of the technology sector. Still, the stock has remained virtually flat over the last year while the sector has risen over 35%.
It would be one thing if Apple was simply part of a broader selloff on the Nasdaq and in the technology sector. However, when an industry leader moves in the opposite direction than its competitors, it is usually a sign that investors have specific concerns about a company.
For Apple, the concerns are largely justified. The growth just isn’t there. Sales in Apple’s second most important market – China – are declining. Apple’s lack of monetization with artificial intelligence (AI) and, frankly, innovation in general, looks poor compared to other big tech stocks like Apple Microsoft And Nvidia Using AI as a springboard for decades of growth.
Apple appears to be out of step, so it’s hard to blame investors for hitting the sell button. To make matters worse, the Justice Department has filed a civil antitrust lawsuit against Apple over its monetization of smartphone markets.
The silver lining is that Apple has a price-to-earnings (P/E) ratio of just 26.1 – making it far cheaper than the technology sector’s P/E ratio of 38.7. Apple generates plenty of cash, allowing it to buy back shares and increase its dividend even as growth slows.
One look at Apple’s paltry 0.6% dividend yield might lead you to believe that the company has a weak capital return program. In fact, you simply choose to distribute the vast majority of funds through buybacks rather than dividends. Given the stock’s performance, Apple’s buybacks were an excellent investment. Buybacks can be particularly effective when a stock is in decline and the company can step in and buy back shares cheaply.
Excluding Apple has been a losing bet in the past. The company’s brand and vertical integration are still strong, so value investors should step in now and consider the stock.
It’s time to move past Nike’s temporary profit surge
Despite its underperformance, Apple has still posted above-average gains over the past five years. The same cannot be said for Nike. Despite huge gains in 2020 and 2021, Nike stock has taken a hit and is now at about the same level as five years ago.
Nike is a good example of why tying a stock to a price it probably never should have reached is bad. During the height of the pandemic, people had limited options for spending money on services, so they flocked to spending on goods. Nike benefited greatly from this. However, the growth proved to be short-lived.
As you can see in the chart, Nike’s earnings per share and operating margin initially collapsed at the start of the COVID-19 pandemic, but then shot up in 2021 – in line with the stock’s record high. Sales have increased, but at the expense of lower profits and margins. The company is closer to pre-pandemic levels than it was in 2021, so it’s understandable why the share price has declined.
To Nike’s credit, it has prioritized its capital return program as growth slows. The company is buying back shares and its dividend has grown 68% in just five years. Granted, the stock yield is just 1.6%, but Nike is emerging as a worthy dividend candidate rather than relying solely on growth as it has in the past.
Like Apple, Nike is one of the most influential brands in the world. Nike now has a price-to-earnings ratio of just 26.2 – below the S&P 500’s P/E ratio of 27.9. The near-term outlook isn’t great, but patient investors have a chance to buy Nike at an attractive price.
Immerse yourself in the healthcare sector with UnitedHeatlh
Like Apple, health insurer UnitedHealth has outperformed the market over the past five years. However, there has been a recent sell-off in the stock, largely due to a smaller-than-expected payment rate increase for calendar year 2025.
UnitedHealth’s growth relies heavily on its Medicare business, so the selloff makes sense. To make matters worse, UnitedHealth also fell victim to a cyberattack that caused the company to default on its claims payments.
Short-term challenges aside, it would be a mistake to underestimate UnitedHealth’s role in the healthcare sector. Drugmakers are pushing the boundaries of innovation, but insurance is the glue that holds the U.S. health care system together. The sector has become the third largest sector in the country, behind only finance and technology.
UnitedHealth is a good choice for investors who want to invest in the healthcare sector, but not through a high-flying drugmaker like it Eli Lilly. UnitedHealth is at the lower end of the healthcare sector and is more focused on moderate growth and increasing its dividend – which has grown 400% over the last decade. Its price-to-earnings ratio is 19.1, making it a good value for those looking for cheaper stocks to buy now.
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Daniel Foelber has the following options: long calls in July 2024 for $95 on Nike. The Motley Fool has positions in and recommends Apple, Microsoft, Nike and Nvidia. The Motley Fool recommends UnitedHealth Group and recommends the following options: long January 2025 $47.50 calls on Nike, long January 2026 $395 calls on Microsoft, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
“3 Dow Jones Dividend Stocks That Are Within 6% of Their 52-Week Lows to Buy Now” was originally published by The Motley Fool