Is It Time to Buy June's Worst-Performing Dow Jones Stocks?

Nike: Down 20.7% in June

Let's start with the biggest plunge. Athletic footwear and apparel giant Nike  $Nike (NKE.US)$ was doing alright for most of last month. The stock traded roughly sideways until June 27, followed by a 19% price drop on the month's final market day.

Nike's crash started with a mixed earnings report for the fourth quarter of fiscal year 2024 (ended May 31). The company exceeded Wall Street's consensus earnings target by 16% but missed its average revenue target by 2.3%.

More to the point, Nike's management signaled uncertainty about foreign exchange rates, the Chinese economy, and lifestyle product sales on the Nike Digital e-commerce platform.

Many analyst firms immediately lowered their price targets for Nike's stock, some gave the shares a lower recommendation status, and the market took notice. As a result, Nike's stock is trading at prices not seen since the brief COVID-19 crash in March 2020.

The company faces many challenges right now. Issues like the wobbly Chinese economy and unfavorable exchange rates also apply to Nike's rivals, but soft e-commerce sales and overstuffed inventories across the supply chain should be more directly under the company's control.

On the upside, Nike is taking action. The company is rebalancing its product portfolio, introducing modern ideas like 3D-printed sneakers with artificial intelligence (AI) designs, and started cutting costs.

It may be tempting to grab a few Nike shares at a multiyear low price. However, slow going in the presumably high-growth e-commerce channel makes me concerned. Is the brand losing value in the eyes of younger consumers?

Moreover, Nike's stock isn't on fire sale. Shares are valued at the modest ratios of 20 times earnings and 18 times free cash flows, indicating a fair value for a very mature stock.

So, I'll take a rain check on Nike's stock at this point. There are so many deeper value ideas to pursue before taking a chance on this shoe giant's potential turnaround.

Walt Disney: Down 4.5% in June

Entertainment powerhouse  $Disney (DIS.US)$ took a different path to a milder price drop in June. Together with a sharper plunge in April, Disney's stock has burned the market goodwill it earned from a fantastic earnings report in February.

Why are investors casting a dim eye on Disney and its stock these days? Well, activist investor Nelson Peltz liquidated his Disney position after losing a proxy battle over the company's future. Peltz could have injected new ideas into Disney's business plan. In particular, he wanted Disney's board of directors to show some backbone when assessing legendary CEO Bob Iger's plans and ideas.

Then again, Peltz's campaign may have achieved some of its goals differently. His capital management firm, Trian Partners, sold its Disney stake at a $1 billion profit. The challenge may also have given the management team and board of directors a fresh sense of fiscal responsibility. The company's streaming video adventures continue but only after selling off unprofitable operations, such as the Hotstar streaming service in India.

Disney's valuation is comparable to Nike's in many ways and slightly loftier overall. In all fairness, I should probably keep my hands off this stock, too. However, I'm more impressed by Disney's streaming future and sector-spanning entertainment empire than Nike's struggles in a much narrower market.

There is a very small handful of stocks I watch like a hawk, scanning for poorly motivated price drops. Disney is on that list, and the current stock swoon strikes me as a solid buy-in opportunity.

So, there you have it. Nike and Disney both took a tumble in June, but their paths forward look quite different.

Nike's got some serious hurdles to jump before hitting its stride again, making it a difficult pick for now. On the flip side, Disney's broad entertainment empire and strategic moves in streaming make it a more intriguing buy during this stock dip.