Despite how strong the stock market grew in 2023, there were more than a few pockets of despair in the market. We know the S&P 500 was driven higher almost wholly on the strength of the Magnificent 7 stocks, but the Dow Jones Industrial Average and Nasdaq 100 also experienced superb gains.
Of course, the seven high-growth tech stocks also influenced some of those indices’ gains. Where the S&P and Nasdaq are market cap-weighted, the Dow is price-weighted. Apple (NASDAQ:AAPL) at $185 a share, weighs in at over 3% of the Dow but has a 9% weighting in the Nasdaq. Nvidia (NASDAQ:NVDA), on the other hand, accounts for 4% of the Nasdaq but, by tripling in value last year, lifted the index to new heights.
While I had some surprises with my portfolio’s winners last year as a result, some of my biggest losers raised eyebrows too. Let’s see if any of these down-and-out companies from last year can turn into rebounding stocks this year.
Genuine Parts (GPC)
Auto parts retailer Genuine Parts (NYSE:GPC) was the stock that caught me off guard the most. Shares declined 18% last year, making it the third worst-performing stock in my portfolio.
The distributor of automotive and industrial replacement parts through its chain of NAPA Auto Parts stores has long been one of my best holdings. The stock’s biggest drop, however, followed third-quarter earnings. Despite missing Wall Street’s expectations, sales and profits both rose, margins widened and it produced $733 million in free cash flow (FCF) during the first nine months of 2023.
It’s likely inflation and rising interest rates finally took a toll because the market remains favorable for GPC stock. The cost of both new and used cars remains elevated even if they hit below the highs. That means current owners are incentivized to keep their existing cars running for as long as possible.
I consider Genuine Parts the leading candidate to rebound this year. It’s also a solid dividend stock with a 68-year history of increasing its payout. With sufficient FCF to support the dividend, it’s in no danger of following the route of my next worst-performing stock.
Walgreens Boots Alliance (WBA)
One of the largest pharmacy chains, Walgreens Boots Alliance (NASDAQ:WBA) has been a disappointing holding for years. Although healthcare is a necessity regardless of market conditions, Walgreens has struggled in recent years. Competition from CVS Health (NYSE:CVS), Walmart (NYSE:WMT), Amazon (NASDAQ:AMZN) and Costco (NASDAQ:COST) was fierce. Foot traffic lagged, it settled for $5.7 billion in its role in the opioid crisis and its medical clinics underperformed.
That all weighed on Walgreens’ finances too leading to its bombshell announcement it was slashing its dividend nearly in half. The stock is now down 7% in 2024.
But don’t count the pharmacy chain out just yet. As painful as the dividend cut is, it was necessary to conserve cash. The stock just might be in a better position to grow throughout the rest of the year. I’m not expecting it to top the charts, but if it finally spins off its U.K.-based Boots pharmacy as planned, sheds the Beauty No7 brand and continues its cost-cutting plans, Walgreens could see shares grow again this year.
Orion Office REIT (ONL)
The biggest loser in my portfolio was Orion Office REIT (NYSE:ONL), a real estate investment trust (REIT) that owns and operates U.S. office properties. It’s also the only one of the three losing stocks I didn’t buy. I got shares when another holding, Realty Income (NYSE:O), spun off its office property operations in 2021.
Yet it’s not surprising why it’s done so poorly. As a REIT specializing in acquiring single-tenant net lease office properties, it relies heavily on debt to finance operations. That exposes the REIT to higher interest costs and credit risks, especially in a rising interest rate environment. The Federal Reserve ratcheted rates higher last year in an unprecedented series of spikes, impacting Orion’s finances.
Although the Fed hinted at possible rate cuts this year, there’s too much uncertainty now. Even so, rates won’t go appreciably lower to improve the REIT’s position. It does have a strong portfolio of properties in attractive markets, high occupancy rates and stable cash flows. The macroeconomic situation, however, may be too tough to fight. I expect Orion Office REIT to be a laggard once again this year. I remain hopeful for the long run, however.
On the date of publication, Rich Duprey held a long position in GPC, WBA, ONL and O stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
