The extended bull market we are in has not been one where a rising tide lifts all boats. The S&P 500 is up 15% year-to-date and is 52% higher since October 2022 when the latest run-up began.
While a lot of the gains for the benchmark index can be tied to how well the Magnificent Seven stocks are doing, many underperforming S&P 500 stocks are just behaving abysmally. There are problems with their business, or they are being especially adversely impacted by macroeconomic factors.
Below are three underperforming S&P 500 stocks that were down 30% or more in the second quarter. They were the worst-performing stocks on the index. But since they are offering extreme discounts, let’s see if they are worth diving into now.
EPAM Systems (EPAM)
Shares of information technology services provider EPAM Systems (NASDAQ:EPAM) tumbled 30.5% in the second quarter. While they bounced 9% higher in July, EPAM stock has yet to reach the level it was at two months ago before reporting first-quarter results.
Despite the IT stock beating analyst estimates for the period, its guidance for the second quarter and full-year underwhelmed the market. EPAM forecasts a 2.6% decline in Q2 sales and a better than 1% drop in revenue for all of 2024. It guided full-year revenue toward a range of $4.575 billion and $4.675 billion.
That is mainly because “client demand is not improving to the degree originally expected.” Yet analysts see that as an industry-wide issue and not a problem of EPAM per se.
Mizuho analysts still maintained their strong buy rating on the stock, though EPAM’s one-year price target was reduced to $282 from $345 per share. The stock currently trades at $205 per share, implying 37% gains are still possible.
Builders FirstSource (BLDR)
The second-worst underperforming S&P 500 stock is Builders FirstSource (NASDAQ:BLDR), a homebuilders supply company. Shares were down 33.7% in the second quarter also because of earnings.
Like EPAM Systems, the building supplies company beat analyst expectations on the top and bottom line but offered up disappointing guidance. Revenue of $3.89 billion was basically flat year-over-year but ahead of analyst forecasts for $3.82 billion in sales. Earnings also fell more than 10% to $2.65 per share but beat Wall Street’s $2.30 per share outlook. Management noted on its earnings conference call that “early momentum in single-family (homes) has slowed.”
That’s troubling because Builders FirstSource also saw a dramatic decline in multifamily housing activity in the first quarter. The segment fell 13%, eliminating its gains in single-family home construction. With single-family homes likely to decline, the future is looking more difficult.
Although the stock collapsed in the second quarter, it bounced higher in July, rising nearly 11%. However, it remains down over 7% for the year.
Walgreens Boots Alliance (WBA)
The worst underperforming S&P 500 stock in the second quarter was pharmacy retail chain Walgreens Boots Alliance (NASDAQ:WBA), which lost 44% of its value. And unlike the other two stocks, it continues to fall this month, down another 8%.
Going from bad to worse is nothing new for Walgreens, which lost over half of its market capitalization in 2024. It has taken body blow after body blow, especially after slashing its dividend to save money. And because it is still paying out over $860 million annually to support the remaining dividend, analysts believe additional cuts — or even suspending it altogether — may be in the cards.
It’s a bitter pill for the company and its investors to swallow. Walgreens had been a Dividend Aristocrat with a near-50-year record of raising the payout. However, as it slims down further to save money, future cuts or a suspension may be just what the doctor ordered.
The pharmacy chain has all but abandoned its ownership stake in Village MD, announced it would close an unspecified number of money-losing stores, and warned about its profit outlook. It has also decided to keep its U.K.-based Boots pharmacy chain.
Investors were disappointed Walgreens didn’t sell or spin off the U.K. business to focus on its U.S. healthcare operations. As it spirals lower, there’s no reason to buy WBA stock. A bottom has yet to be reached.
On the date of publication, Rich Duprey held a LONG position in WBA stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
