These stocks are down for reasons greater than simple volatility, untimely bad luck, or instinctive investor reactions. Now in the sixth month of the COVID-19 invasion of the United States and the ninth month since it was first recognized as a deadly disease, it is starting to become clear that some companies are facing challenges. headaches far beyond the temporary ones set up by the coronavirus.
Three DJIA losers
If you are wondering, the DJIA tickers in question are Intel (NASDAQ: INTC), Boeing (NYSE: BA), and Technologies Raytheon (NYSE: RTX) – all the well-founded pillars that will certainly be in a few years, but also all the names that have been sold for a reason. In other words, their awakening is not exactly imminent.
Intel’s setback was largely motivated by another round of well-known bad news. It is experiencing more delays in research and development that were partially brought on by the coronavirus outbreak this time around.
The tech company has repeatedly struggled with its foundry technology of 7 nanometer (nm) processors, while rival processor maker Advanced micro-systems already sells 7nm processors. It’s still unclear when Intel might hit the market with a competing chip, as the company warned again on its recent second-quarter conference call that its 7nm processor schedule has been extended. COVID-19 has made it difficult to do much on this front. That news alone was enough to get the stock moving, but days later the news that former chief engineer Murthy Renduchintala would only leave those bearish flames stoked.
In total, Intel shares fell 20% in July, with investors now perhaps wondering if there is a much bigger fundamental flaw in the way the company plans and manages product development. It is much more difficult to repair than a simple retooling.
Boeing hasn’t slipped as much as Intel, but the 11% loss in its stock last month is hardly modest given the Dow’s 19% gain in July.
The company’s relatively new 737 MAX jets were once touted as a game-changer. A few catastrophic accidents shortly after going into service in 2019, however, forced most global airspace regulators to stop the plane until its issues were resolved. Boeing engineers have apparently made measurable progress, with the FAA approaching a renewed assessment of the aircraft’s airworthiness in 2020.
Recertification may not be enough, however. Airlines are now experiencing weakened demand for air travel thanks to COVID-19, and it’s not inconceivable that many are still worried that something is wrong with the 737 MAX that remains to be achieved. Between the two headwinds, more than 350 aircraft orders were canceled during the first half of this year. There is also no clarity as to when or even if these canceled orders will be replaced.
Finally, Raytheon’s 10% drop in July isn’t scary, but it’s certainly not objectionable.
To its credit, the company beat its second quarter profit and revenue estimate when the numbers were released on Tuesday. The problem is, those numbers were much lower year on year, reminding the market that the same weakened demand for Boeing jets also means a decrease in demand for related aircraft components produced by Raytheon.
Read between the lines
In some ways, being an investor in March was easy: suppose all businesses are going to be hit hard. The liquidation in late February / early March was pretty blind, dragging almost everything down. In a similar sense, the rally from March lows to current levels was also quite drastic, pushing most stocks and most investment categories higher. It was hard not to do well no matter how you were playing in the market.
As July turns into August, clarity begins to bloom.
Take a closer look at why these three names suffered last month, unlike most other stocks in the Dow Jones. Every business has struggled when the coronavirus was new, including these three. However, only some companies will continue to struggle in the aftermath of the pandemic. Air transport looks like one of those industries in the grip of prolonged turmoil. Even though COVID-19 appears to be waning, the public may remain worried about sitting in a confined space for so long with so many other people. Passing through an airport terminal is not a germ-free experience either. The aircraft’s headwind could last for some time. This is the ripple effect of the epidemic.
As for Intel, the coronavirus hasn’t caused its problems, but it certainly exposed and exacerbated them. Its research and development process will return to normal in the near future, but Intel’s “normal” isn’t necessarily great. Its new leadership structure will take time to reset, but time is the one thing Intel doesn’t really have to give.
But it’s not just Raytheon, Intel and Boeing. Unlike most points between March and now, investors now know why they are bidding or sending them down. It is not a simple panic or fear of missing something. If a stock is going down, it’s probably going down for a reason. It would be wise to start taking the market cues instead of just buying the dips and selling the rips. We are simply no longer in this kind of volatile and easily reversed environment.