The Dow Jones Industrial Average (DJIA) had a relatively strong year amid the novel coronavirus pandemic. The index dropped by more than 35% in the first quarter as the pandemic continued to spread around the world. It then bounced back by more than 60% and crossed the important milestone of $30,000.
The Dow Jones also went through a reshuffle that saw companies like ExxonMobil, Pfizer, and Raytheon Technologies. It replaced them with companies like Amgen, Honeywell, and Salesforce.
Most companies in the Dow performed well in 2020. Of the 30 components, only 12 companies declined during the year. Let us look at whether the worst performers in the index have a chance in 2021.
Boeing was once one of the leading companies in the Dow Jones. Today, the company is a shadow of its former self. It has a market cap of more than $124 billion, putting it in the bottom ten of the smallest companies in the index.
The problems started in 2019 when an Ethiopian Airlines jet downed shortly after take-off. That prompted most countries to suspend the Boeing 737-Max as the company worked to repair the plane. It also became a victim of congressional and federal investigations. This mattered for the company since Max is the firm’s top seller.
The COVID-19 pandemic made things worse as more airlines started to struggle. Others went out of business as global travel came to a halt. As a result, Boeing’s shares dropped by more than 32% this year, making it the worst-performing company in the Dow.
While the company remains in trouble, it seems like the worst is now behind it. That’s because the Federal Aviation Authority (FAA) has already given it the go-ahead on its Max fixtures. This means that the company will now move to repair the planes – that are already grounded due to COVID.
Also, countries have already started COVID vaccinations. This means that global travel will rebound in the coming year. While the recovery will take years to complete, there is a possibility that this optimism will be good for the stock. Indeed, Boeing shares have already risen by more than 145% from its YTD lows.
Boeing shares performance
Walgreens Boots Alliance (WBA)
Walgreens Boots Alliance is the smallest company in the Dow Jones with a market cap of more than $35 billion. The company is the biggest player in the retail pharmacy, health, and daily living industry in the country. In total, it has more than 21,000 stores in the United States and 11 other countries. Its brands include Duane Reade, Boots, and Alliance Healthcare.
Walgreens generates more than $139 billion in annual revenue, making it a perennial Fortune 500 brand. Its biggest competitor is CVS, a company that is valued at more than $91 billion.
Walgreens shares have lagged the market for several years now, and it was the second-worst performing stock in the Dow Jones in 2020. It dropped by more than 28%.
This performance was mostly because of the lockdowns that affected the number of people filling prescriptions in its stores. It was also because of the rising competition in the industry. For example, a company like GoodRx launched its IPO as the company’s growth continued.
Perhaps the biggest threat was Amazon, which announced that it would boost its prescription industry. Because of its scale, analysts believe that the firm poses a substantial threat to Walgreens.
Also, investors started getting critical of the company’s debt. It has about $516 million in cash and more than $3 billion in short-term debt. In addition to this, it has more than $12 billion in long-term debt, which makes it a highly indebted company.
So, is WBA a good investment in 2021? We believe that the company will rebound for one reason. While Amazon is a major threat, it will likely not be able to fully disrupt the company because of its vast real estate assets. Also, while the company has lots of debt, it will be able to fulfill its obligations. Therefore, risk aversion may make Walgreens a strong performer in 2021.
Walgreens vs. S&P 500
Chevron and other oil giants had a mixed year in 2020. In the first part of the year, the stock crashed due to the overall weak oil prices. In March, the shares dropped to a multi-year low of $54.26. It then bounced back by more than 60% as the price of oil bounced back. Still, the stock is down by 27%, making it the third-worst performer in the Dow Jones.
As we move into 2021, Chevron and all oil companies face significant challenges. While a vaccine will boost global travel, there is the challenge of American companies that are boosting their production. As such, rising demand could meet soaring production, which means that the price of oil will likely go back to below $50.
Another challenge for Chevron is that it will have to contend with high regulations as Joe Biden ascends to the presidency. That could lead to higher costs at a time when the company is facing significant challenges. Therefore, we would not recommend investing in CVX in 2021.
Chevron vs. S&P 500
Intel has been in trouble for a while now. Shares of the world’s biggest manufacturer of computers dropped by more than 25% in 2020. Interestingly, this happened in a year that technology was the best-performing sector in the United States.
This decline happened because of several reasons. The most notable was that the firm continued facing competition from the likes of Advanced Micro Devices (AMD) and Nvidia. These companies have continued to take market share from Intel.
Also, the company underperformed because of the continued delay of its 7nm chips and the decision by Apple to launch its own desktop chips.
So, will Intel recover in 2021? We believe that the momentum has already moved from the company as investors rush to the likes of AMD and Nvidia. Therefore, we believe that Intel is not a good investment in 2021.
At times buying companies that underperformed in one year tends to be a good idea. However, this does not always happen. Therefore, we believe that you should be careful when investing in companies that underperformed in 2020. Like Walgreens and Boeing, some may do well, but we also believe that others will continue to lag.