Until the big swoon on Friday, the stock market had been crushing just about every bullish investor's wildest dreams for positive returns, with nearly a couple dozen new record highs so far during the year. For those who believed that May would finally mark the end of the long four-year bull market, the month's overall performance was disappointing, as the Dow Jones Industrials gained almost 2% during May.
But just because the overall average rose doesn't mean that every company shared its good fortune. Fully a third of the Dow's 30 components lost ground during the month. Let's take a look at the four that lost more than 5% on the month to see what we can identify from their performance.
Verizon , down 10.1%, and AT&T , down 6.6%
Addressing both of the Dow's telecom giants makes sense given the common traits they share. Both of them have high dividends and rely on their extensive wireless networks for large portions of their revenue, and both have made huge investments in building up those networks over time. As a result, both were vulnerable when one analyst argued that Google Fiber could challenge the entire way that the two telecoms offer triple-play video, voice, and data to their customers. In addition, though, the drop in the bond market over the past week also isolated the two high-dividend payers, as higher interest rates make the value of the discounted stream of future revenue the two telecom giants earn less valuable in terms of present value. Neither AT&T nor Verizon need to worry about competition too much right now, but further bond-market weakness could push shares downward even from these lower levels.
Pfizer , down 5.6%
Like the two telecoms, Pfizer suffered its worst losses in the last part of the month. The same argument regarding dividend stocks applies just as well to Pfizer as to AT&T and Verizon. But in addition, Pfizer shareholders face an interesting decision in the near future about whether to hang onto their shares or exchange them for shares of Pfizer's 80%-owned animal-health unit Zoetis. Offering roughly a 7% discount to make the exchange, Pfizer shareholders will feel pressure to accept the Zoetis offer, but the impact it will have to both companies' shares going forward is uncertain. Some investors might well simply prefer to sell their shares now rather than facing that dilemma, especially given that Zoetis shares saw similar declines. In the long run, though, Pfizer's success depends on the success or failure of its drug pipeline, so keep an eye on news related to new drug prospects rather than getting bogged down in the Zoetis deal.
Coca-Cola , down 5.5%
In addition to the interest rate issue, Coke suffered some company-specific bad news last week. A worker strike in Venezuela has eaten into Coke's revenue from the South American country, and although that won't make a substantial hit to the company's overall sales, the stock's response shows just how sensitive it is to even the hint of bad news. Given a relatively high valuation despite its growth challenges, Coke needs to resolve its issues promptly to get back moving in the right direction.
What's next for these stocks?
If the Dow follows through on Friday's 200-point decline with further losses, these stocks look like reasonable prospects to keep suffering. Only if we see a reversal in sentiment should investors expect short-term bounces from the stocks. From a long-term perspective, however, these stocks all have favorable traits, making any share-price decline right now a potential buying opportunity.
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The article Why These Dow Stocks Fell in May originally appeared on Fool.com.
Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool recommends Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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