Two Dow Jones Stocks Down More Than 10% in 2021

The Dow Jones Industrial Average has performed solidly, returning 17.4% year-to-date. With the economy's gradual recovery due to an increasingly COVID-19 vaccinated population and the rise in industrial activity, the DJIA scaled new highs. The index hit its 52-week high of 36,565.73 on November 8, 2021. It surged 380 points yesterday, while the S&P 500 reported its second  highest close of 2021.

Economic development and changes in the overall outlook led the Fed to announce yesterday its decision to combat rising inflation by accelerating the reduction of its bond purchases. The Fed also announced that interest rate hikes will be adopted as soon as the bond purchase tapering is wrapped up in 2022. However, the Federal Open Market Committee reduced its forecast for economic growth to 5.5% for 2021, down from the 5.9% reported in September. So, the market’s volatility is expected to persist.

The Walt Disney Company (DIS) and Verizon Communications Inc. (VZ) are two DJIA stocks that have retreated more than 10% on a year-to-date basis. In addition, they look overvalued at their current price levels. Hence, we think it could be wise to avoid them now.

The Walt Disney Company (DIS)

Famous entertainment company, DIS, which is headquartered in Burbank, Calif., operates through four segments: media networks, parks, experiences and products, studio entertainment, and direct-to-consumer and international. It engages in film and episodic television content production and distribution, and operates television broadcast networks under the ABC, Disney, and ESPN brands.

On November 24, 2021, DIS announced in its annual report that it plans to increase its overall spending on content to $33 billion in its fiscal year 2022, which is almost $8 billion more than DIS spent in fiscal 2021. It intends to spend more on expanding its reach through its streaming platforms, such as  Disney Plus, Hulu, and ESPN Plus. However, it is uncertain if it will reap significant benefits from this move amid intense competition from Netflix Inc. (NFLX) and Amazon Prime.

For its fiscal year ended October 2, 2021, DIS’ total segment operating income decreased 4% year-over-year to $7.76 billion. The company’s free cash flow decreased 44.7% year-over-year to $1.98 billion. And for the fourth quarter, ended October 2, 2021, DIS’ cost and expenses increased 18.3% year-over-year to $17.93 billion.

In terms of forward EV/S and P/S, DIS’ respective 3.91x and 3.27x are higher than the 2.47x and 1.71x industry averages. Furthermore, the stock’s 2.83x forward P/B is 8.2% higher than the 2.62x industry average. The stock has declined  17% in price year-to-date to close yesterday’s trading session at $150.40.

Verizon Communications Inc. (VZ)

VZ in New York City provides communications, information, and entertainment products and services to consumers, businesses, and governmental agencies. Its segments include Verizon Consumer Group and Verizon Business Group. Its consumer segment provides wireless and wireline communication services, while its business segment provides everything that the consumer segment offers, including data and video conferencing services.

VZ’s operating expenses for its fiscal third quarter, ended September 30, 2021, increased 0.6% year-over-year to $24.01 billion, while its cost of wireless equipment increased 29.6% year-over-year to $5.67 billion. The company’s net cash from operating activities decreased 4% from last year to $31.16 billion.

In terms of forward EV/S and non-GAAP PEG, VZ’s respective 2.87x and 3.4x are higher than the 2.47x and 1.33x industry averages. The stock has declined 14% in price year-to-date to close yesterday’s trading session at $50.55.

DIS shares were trading at $149.89 per share on Thursday afternoon, down $0.51 (-0.34%). Year-to-date, DIS has declined -17.27%, versus a 26.49% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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