It's been an erratic year for the stock market. Through everything that's happened so far, the broader benchmark S&P 500 is down about 6%, although much more from highs the market reached in mid-February.
Most stocks have struggled in the wake of President Donald Trump's tariffs that have seemingly threatened almost every sector. Several have significantly underperformed the broader market.
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The three worst performers in the broader market are down at least 38% this year (as of April 25). However, many believe there are no bad assets, only bad prices. Should investors buy the three worst-performing stocks in the S&P 500 this year?
Deckers Outdoor (NYSE: DECK) is an apparel and footwear company that owns some well-known brands including UGG, Hoka, Teva, and Sanuk, among others. Down roughly 46% this year, it is the worst-performing company in the S&P 500. The stock has struggled as investors grow concerned about future growth and tariffs.
The company reported a fairly strong fiscal third quarter at the end of January, but the guidance for the full year didn't impress investors, and the stock sold off intensely.
Tariffs are also an issue. In its annual report, management said that it uses independent manufacturers and their material suppliers for most of its production, most of which are in China and Vietnam.
Despite the struggles, analysts are fairly upbeat about the company. Over the last three months, 17 analysts have issued research reports, according to TipRanks; 12 of those analysts recommend buying the stock, while the rest say hold.
The average price target implies a 70% upside from current levels. Raymond James analyst Rick Patel recently upgraded the stock from outperform to strong buy, suggesting that concerns over growth and tariffs are now priced in. Patel also said the company has a strong balance sheet and free cash flow generation.
I would agree with Patel. These are the stocks to buy on a big sell-off: those that have been hit hard but can weather the storm with strong balance sheets. While I expect there to be some level of tariffs levied against China once everything is said and done, I highly doubt it will remain as high as 145%, which seems like an unsustainable level.
Teradyne (NASDAQ: TER) makes automated tests and robotics systems that help its clients, many of whom are in the semiconductor space, build their products and conduct quality control. Some of Teradyne's biggest customers are Qualcomm, Samsung, and Texas Instruments. They can use Teradyne's products to test wafers and their whole chips at various parts of the manufacturing process.
Given the role Teradyne plays in manufacturing chips, a good chunk of its revenue is going to be driven by demand for semiconductors and therefore demand for artificial intelligence (AI) solutions. This demand has begun to show signs of slowing, as companies pull back on capital expenditures and try to weather the impact of tariffs. Teradyne gets the bulk of its revenue from South Korea, Taiwan, and China.
At an analyst day in March, management reaffirmed the company's first-quarter guidance, but also cut its second-quarter guidance, saying that revenue could be flat or down as much as 10% from the first quarter, due to uncertainty about trade and tariffs. This all happened before President Trump's "Liberation Day," so it wouldn't be surprising to see the company revise guidance lower again at some point, given what happened in April.
Of the 17 analysts who have issued a research report over the last three months, 13 rate the stock a buy, two say sell, and two say hold, according to TipRanks. The average price target, however, implies 48% upside.
The stock has been hit hard and now trades at 23 times forward earnings, well below its five-year average of nearly 36. It will likely continue to face near-term pressure, as uncertainty over tariffs and trade reign supreme in the near term. But given the company's crucial role in chipmaking, I think the stock can bounce back along with the AI sector when things start to settle down.
ON Semiconductor (NASDAQ: ON) makes chips used by several industries including automaking, industrials, 5G and cloud technology, healthcare, and aerospace and defense. In 2024, the company generated nearly half of its revenue from chips for electric vehicles (EVs) and hybrid electric vehicles.
Many semiconductors companies have struggled this year, as investors began to question high valuations and demand for AI. Also, EVs and industrials haven't boomed as much in recent years as they did following the pandemic, which led to a significant dip in revenue and profits in 2024.
Recently, ON Semiconductor also gave up on plans to acquire Allegro Microsystems for $6.9 billion, a move that would have boosted the company's business in the automaking, industrial, and consumer electronic verticals. The acquisition faced challenges from regulators, which ultimately proved too difficult to overcome.
Wall Street analysts are once again encouraging investors to buy the dip. Over the last three months, 24 analysts have issued a research note on the company, with 15 saying buy, eight hold, and one sell, according to TipRanks. The average price target implies 43% upside.
B. Riley analyst Craig Ellis recently downgraded ON Semiconductor from a buy to neutral, citing a lack of visibility on when revenue will start to move higher again. Ellis now projects lower revenue in the back half of 2025 and 2026, due to slower sales in its auto and industrial businesses, citing nonstrategic exits as one reason.
The stock's valuation has gotten a lot cheaper. The company now trades at 16 times forward earnings, slightly below its five-year average.
But overall, I'm less enthusiastic about this one right now. Revenue has declined, and it's tough to know what EV demand will be like over the next four years, particularly with the current administration not prioritizing green initiatives and rolling back incentives for EVs. I think there are other semiconductor companies to look at instead.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Deckers Outdoor, Qualcomm, and Texas Instruments. The Motley Fool recommends ON Semiconductor and Teradyne. The Motley Fool has a disclosure policy.
Stock Market Sell-Off: Should You Buy the 3 Worst-Performing Stocks in the S&P 500 Index? Here's What Wall Street Thinks. was originally published by The Motley Fool
