Is It Time to Buy the S&P 500’s 6 Worst-Performing June Stocks?

If you buy stocks only after a dip, you have plenty to pick from right now. The S&P 500 (SNPINDEX: ^GSPC) is down almost 20% for the year, losing more than 8% of its value last month alone. That means roughly half of the index’s stocks performed worse; some of them performed much, much worse.

But before plowing into any of these beaten-down names just because they’ve been so deeply discounted, it might pay to take a step back and look at the bigger picture. There’s a clear commonality among most of last month’s biggest S&P 500 losers, which could be a red flag for bigger-picture problems for a particular industry.

Worst of the worst in the S&P 500 in June

As they say, read ’em and weep. Here are last month’s six worst-performing S&P 500 stocks.

Company June Decline
American Airlines (NYSE: DAL) 29.4%
Delta Airlines (NYSE: DAL) 30.5%
Norwegian Cruise Line (NYSE: NCLH) 30.5%
Bath & Body Works (NYSE: BBWI) 34.4%
Carnival Cruise (NYSE: CCL) 37.7%
Royal Caribbean (NYSE: RCL) 39.9%

Chart by the author.

The common element is painfully clear — of the six names in question, five of them are travel related. Bath & Body Works is lumped into the mix not so much because the company’s doomed, but because the broader economic headwind just forced the retailer to dial back its profit guidance in May. Analysts pounced on this manageable and temporary problem all the same, though.

Travel is the real story here. The travel and tourism business, still reeling from the pandemic’s rekindling early this year, faces potential trouble from rampant inflation and the prospect of a recession. Investors acted accordingly, even if the selling was unusually strong.

Indeed, based on the sheer scope of the sell-offs, some might even categorize travel stocks’ setback as being overblown, leaving them ripe for a rebound now. Bolstering the argument for a quick recovery is the fact that even with gas prices at record-breaking levels, AAA predicted that travel during the Fourth of July holiday weekend would be up 3.7% compared to 2021, nearing pre-pandemic levels.

There’s a funny quirk about the ebb and flow of stocks that even veteran investors might struggle to quantify. That is, as much as stocks as a whole tend to move as a herd, stocks within a particular sector not only tend to move as a tightly linked herd as well, but they also tend to continue moving as a herd once they have some momentum.

As the chart below shows, the Dow Jones Travel and Tourism Index’s patches — the strong ones as well as the soft ones — for the past 10 years not only lasted for months on end, they also often dramatically outperformed or underperformed the S&P 500 itself. For example, travel stocks crushed the broad market’s rally for all of 2014 but completely missed out on 2018’s and 2019’s broader rally.

^SPX data by YCharts.

And yes, travel stocks clearly have some bearish momentum that has developed here.

Take the hint and avoid these stocks right now

It’s not easy to say exactly what causes a sector’s or industry’s stocks to stick together so well for so long. Obviously, most of their fates are linked to the same economic dynamic. For example, if a consumer isn’t booking a flight due to economic reasons, it stands to reason that the same consumer isn’t interested in taking a cruise, either.

But the herd effect can at times produce uncannily similar performances for similar stocks that persist far longer than you might expect. That’s most likely because there’s more than just a little volatility in play. When you get this kind of poor performance for this long from one group of stocks, it’s usually rooted in a well-reasoned concern.

And that’s exactly why you don’t want to be in any hurry to jump on June’s large-cap losers. While it’s not always the case, this time around these shared, steep downtrends are the market’s way of telling you the entire industry has some major problems to address. These are the kinds of problems that aren’t fixed in a mere matter of days, or even weeks.

Fortunately for investors on the hunt for fresh bargains, there are a bunch of randomly, errantly beaten-down names that are positioned for a bounce sooner rather than later.

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James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends Carnival and Delta Air Lines. The Motley Fool has a disclosure policy.