The S&P 500 overall is testing new all-time highs, but not all stocks are performing well. Some flagship companies have lost more than 40% of their value since the start of 2024.
And now could be the time to buy one of those S&P 500 laggards.
56% off, is this the big box retailer?
Walgreens Boots Alliance (NASDAQ: WBA) is a well-known American company. Based just outside of Chicago, Illinois, the company operates more than 8,000 retail and pharmacy locations serving nearly 9 million people every day.
Since 2024 began, Walgreens stock is down 56%. The S&P 500, by comparison, has resurrected 17%. The collapse reduced Walgreens’ market capitalization from $22 billion at the start of the year to just under $10 billion. The inventory price to earnings ratiomeanwhile, it’s down to 32 times earnings as of this writing.
What happens; The bigger issue is that pharmacy benefit managers — the middlemen between pharmacies and health insurance companies — have pressured pharmacies on reimbursement rates. It’s an industry-wide problem, but unlike many of its competitors, Walgreens doesn’t have a major pharmacy benefit manager. The result is shrinking margins.
The company has also struggled with bad acquisitions. The recent acquisition of VillageMD, for example, destroyed a ton of equity value. The business, which was bought for $5 billion in 2021, has created hundreds of millions of dollars in losses for Walgreens, which now plans to close hundreds of locations.
Is now the time to buy? Not if rival drugstore Rite-Aid is any indication. That company filed for bankruptcy less than 12 months ago due to many of the same pressures. While Walgreens stock may look like a bargain, its future will be dictated by a force it doesn’t control: the decisions of big pharmacy benefit managers. Shares look cheap by some valuation metrics — shares trade at just 4 times forward earnings estimates, for example — but it’s wiser to stick with companies that better control their futures, like the next stock in this list.
This big name stock is no lemon
Like Walgreens, Lululemon Athletica (NASDAQ: LULU) has had a rough 2024. Shares are down 44% since the start of the year, but the recent slide overshadows what has otherwise been an impressive long-term performance. Over the past decade, Lululemon’s stock has risen more than 600%, while Walgreens has fallen nearly 85%.
Why is this once high-end stock in the bargain bin? As Fool partner Jennifer Saibil explains: “Many investors have become pessimistic about Lululemon. Growth is slowing and it faces stiff competition from new companies like Alo Yoga and Vuori, not to mention regular competition from Win and similar companies. In the pressured inflationary environment, it is also likely that some of its customers will switch off.”
However, Lululemon remains, undeniably, a premium clothing brand. The company enjoys high levels of customer loyalty, and its premium pricing reflects that reality, even if sales growth has been squeezed more recently. The company still guides for revenue growth of 11% to 12% this year, and management recently raised its full-year earnings guidance from $14.10 to $14.37 per share. Management also doubled down on the struggling stock price by launching a $1 billion share buyback plan.
In early 2024, Lululemon stock was trading at a pricey 65 times earnings. After the correction, shares are trading at just 23 times earnings. That’s an amazing price for a growing, iconic apparel company with its best days likely still ahead of it.
Should you invest $1,000 in Lululemon Athletica right now?
Before you buy stock in Lululemon Athletica, consider the following:
The Motley Fool Stock Advisor The analyst team has just identified what they think it is 10 best stocks for investors to buy now… and Lululemon Athletic was not one of them. The 10 stocks that made the cut could produce huge returns in the coming years.
Think about when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $791,929!*
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Ryan Vanzo has no position in any of the listed shares. The Motley Fool has positions and recommends Lululemon Athletica and Nike. The Motley Fool recommends the following options: long January 2025 $47.50 Nike calls; The Motley Fool has one disclosure policy.
Is It Time to Buy the Worst-Performing S&P 500 Stocks of 2024? originally published by The Motley Fool
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