Should you buy the 4 worst performing S&P 500 stocks in 2022? | Personal finance

(James Brumley)

If you are an investor looking for bargains, there are definitely plenty of stocks for sale here. the S&P500 (SNP INDEX: ^GSPC) is down almost 19% since the start of the year, while many of its constituents are considerably deeper in the red.

However, beaten prices alone are not enough of a reason to start picking up stocks, no matter how deep their pullbacks. A business should always be a name worth owning for the long term, regardless of the price.

And that’s a hard thing to fathom for the S&P 500’s four worst performers for 2022 so far.

What went wrong

If you’re wondering, the biggest losers among S&P 500 tickers so far this year are PayPal (NASDAQ: PYPL), Alignment technology (NASDAQ:ALGN), Etsy (NASDAQ: ETSY)and netflix (NASDAQ:NFLX)down 63%, 64%, 70% and 75%, respectively, since the end of 2021. Ouch!

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At first glance, there is no common thread. Netflix was crushed as, for the first time in its history, it lost subscribers. Align Technology (the name behind Invisalign braces) is grappling with the lingering impact of the COVID-19 pandemic. The Etsy e-commerce platform is still trying to figure out what it is in a market that includes competitors like Amazonas well as empowering DIY e-commerce platforms like those offered by Shopify. And PayPal? Despite continued revenue growth, investors still believe that alternative payment options will reduce its market share.

There’s more in common between these setbacks, however, than meets the surface. With the exception of Align, investors were genuinely surprised that the resounding successes of these companies seen in 2020 and 2021 – plagued by the COVID-19 pandemic – did not persist in 2022.

In other words, the wrong kind of surprise can wreak havoc on a stock.

As for Align, while it has never really thrived or suffered from the contagion of the coronavirus (aside from the logistical challenges of lockdowns), it still faces the fallout of the pandemic that lasts much longer than anyone who initially feared him. Now, the specter of an economic recession has some consumers rethinking the immediate need for straighter teeth. Even so, it is an unexpected headwind that is rattling investors, turning them into sellers.


On the surface, this seems somewhat out of place. While the market may not have seen these struggles brewing, the sales these tickers have been doling out only reflect the current performance of these companies.

Except that might not be quite the case.

Yes, the direction in which these stocks have moved is consistent with the direction these companies are taking. The depth to which investors react to poor results, however, can vary depending on expectations. While the market knows that average earnings are in the cards, the revelation of lackluster numbers doesn’t send investors into a panic…when the selloff really picks up. If investors know how to prepare for bad news, stocks are usually discounted to a more appropriate price to reflect that reality.

Image source: Getty Images.

The alternative? The shock has an exaggerated impact on the price of a stock. That’s largely what happened here with these four names.

The shock also prevents people from looking to the future rather than the past, when they should be doing just that.

Perhaps most problematic, however, is that these selloffs have reached extreme proportions only because stocks tend to herd. Once the rush of sales begins, it’s hard to stop, even when lower prices may not be justified for most of them.

think bigger

The question remains though: should you buy the four worst performing stocks in the S&P 500 in 2022 so far?

That’s not always the case, but right now, yes – these stocks are too oversold for long-term investors interested in them to simply pass up.

While the setbacks made enough sense, the fear and panic arguably wreaked more havoc than they should have. Investors, as a crowd, are starting to think a little more calmly, however. While they know 2022 could be tough, they’re also starting to see that these aforementioned companies have viable plans to deal with it.

Netflix, for example, could launch an ad-supported version of its streaming service as early as this year, appealing to senses of worth that will be heightened if the economy is weak. Although PayPal faces a kind of competition it has never faced before, it is also innovating new ways to maintain its place as the world’s largest digital payment intermediary. Last month it unveiled a cash-back credit card and late last year licensed e-commerce sites built by Wix to offer their customers loans to buy now and pay later. Align and Etsy are also adapting.

Yet none of the already exaggerated sales of these stocks reflect these initiatives.

And it’s not just these four companies. A bunch of big stocks have been dragged lower than they deserve, for all the wrong reasons.

That’s not to say that any of these names haven’t bottomed out, mind you. They can still lose ground. That is to say, however, now that the dust of impulse selling is starting to clear as we push back the hysteria, the market is starting to realize that at least with some stocks the selling was more than a bit exaggerated. That makes a lot of these names great buys now, although we’re not quite through the turmoil yet. Better to be a little too early than much too late.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. James Brumley has no position in any of the stocks mentioned. The Motley Fool holds and recommends Align Technology, Amazon, Etsy, Netflix, PayPal Holdings, and The Motley Fool has a disclosure policy.

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