It’s Time to Buy These 3 Dow Laggards

The United States is more than 5,000 miles away from Ukraine. American companies derive very little revenue from Ukraine. Some have exposure to Russia—albeit to a rapidly dwindling extent as world governments, corporations, and sports organizations continue to denounce the country’s attack on Ukraine.

So why are U.S. stocks going down so much?

For starters, the market doesn’t like uncertainty. There is plenty of it swirling around Eastern Europe and this translates to risk. When the geopolitical risk is elevated, the stock market flips the switch to risk-off mode.

More specifically, investors are concerned that the events in Ukraine could have crippling effects on a global economy that remains fragile in the wake of the pandemic. Slower growth and rampant inflation spreading into Europe and other parts of the world would undoubtedly impact U.S. companies.

That’s why even blue-chip names such as those in the Dow Jones index have been unusually volatile in recent days. For the long-term investor, it means quality stocks like The Home Depot, NIKE, and 3M are now worth invading.

Why Did Home Depot Stock Go Down? 

Shares of The Home Depot, Inc. (NYSE:HD) have gone from first to worst. Up more than 50% to lead the Dow in 2021, the home improvement retailer has some remodeling to do as the benchmark’s biggest underperformer year-to-date. 

There’s reason to believe the world’s leading supplier of appliances, tools, and other housewares will bounce back. The figures in its fourth-quarter were outstanding but its timing was not. Even though profits jumped 21% year-over-year and beat the Street, the stock got hit by a 2-by-4 amid weak market sentiment.

Investors also moaned about management’s guidance for single-digit earnings growth in the current fiscal year. This largely ties to the anticipated impact of higher mortgage rates on home building activity. A slowdown in the housing market and moderation of the torrid pace of repair renovation activity was inevitable absent the pandemic tailwinds.

Still, Home Depot should benefit from a favorable home improvement spending environment. Homeowners that refinanced before rates started rising are more likely to stay put and upgrade their homes.  Moreover, record low inventories of homes for sale and high prices will spur others to get their homes ready to sell. 

Lately, it’s been a seller's market for housing and Home Depot shares, but look for the stock to rebuild off its 25% slide. 

Is it a Good Time to Buy Nike Stock?

After five consecutive years of gains, NIKE, Inc. (NYSE:NKE) is down 20% year-to-date. The stock was due for a correction after its forward P/E ratio approached 40x last year, but the selloff looks overdone at this point.

When it comes to inflation-proof companies, Nike sprints to the top of the list. Higher materials, transportation, and wage costs are less of an issue when you have a premium brand that consumers are willing to pay up for. As Nike has raised prices of its footwear and apparel, shoppers haven’t batted an eye. It is an enviable position for a clothing company to be in and one that will continue to serve the industry leader well.

The most compelling reason to own Nike over the next few years is the growth expected in its direct-to-consumer channel. With the trend in online shopping accelerating, Nike is paring back its dependence on third-party retailers and investing in its websites and apps. This should continue to drive strong sales in the Nike Direct business as the company forms more intimate connections with its loyal customer base. 

Nike stock tends to be volatile after earnings are released. The last several reports have been followed by sizable price gaps in either direction. When the sneaker king reports on March 21st, look for its stock to jump and resume a long-term upward trajectory that dates back to 1984.  

What is a Good Value Stock?

3M Co.’s (NYSE:MMM) slump of last year has extended into 2022. The Dow mainstay can now be had for 44% off its all-time high above $250. 3M is a different company than it was five years ago, but still has buy-and-hold written all over it.

Inconsistency has plagued the stock in recent quarters. Periods of strong performance have been mixed with disappointing results. This lumpiness largely relates to 3M’s restructuring plan which has been several years in the making. Manufacturing capabilities have been combined and the customer experience made a focal point. Now operating under four business units with better ties to their end markets, the business model is cleaner and should lead to improving trends in revenue and margins. 

As a supplier of a broad range of products to the safety, transportation, electronics, health care, and consumer markets, 3M is simply a diversified play on the global economic recovery. What it lacks in exciting growth, it makes up for in compelling value. A dividend that has been increased for 63 consecutive years, share buybacks, and a 2022 P/E of 14x are three reasons to include 3M in a long-term portfolio.