The prices of these stocks have recently collapsed, and this could represent an opportunity.
After months of new highs driven by an overheated technology market, July was a different story. S&P500 rose about 3.5% in the first half of the month – everything seemed business as usual for 2024 – but lost more than 2.5% from its peak by the end of the month.
However, this sell-off was not really a sell-off. That is, money did not leave the market, but rather was moved to other parts of the market.
Expectations of a change in monetary policy by the Federal Reserve, as well as months of huge gains by a concentrated group of mega-cap companies, led investors to shift their focus to mid- and small-cap companies. While the S&P 500 gained less than 1% and the Nasdaq-100 lost 1.6%, the S&P SmallCap 600 rose by almost 11% in July.
But as hard as it is to see so much red, remember that it could also be an opportunity. Let’s take a look at some of the hardest-hit stocks in the S&P 500. Now could be just the time to snap up some of them.
DexCom cut its forecast and investors lowered the share price
DexCom (DXCM -6.23%) makes continuous glucose monitoring (CGM) systems for people with diabetes. For many people, these devices are life-changing, and that is reflected in the company’s revenue, which reached around $3.6 billion last year.
But in late July, the company’s stock price plummeted after the release of its second-quarter results, even though the company beat consensus earnings per share (EPS) estimates and posted solid 15% year-over-year revenue growth. So why did the stock price fall more than 40% the next day?
That’s because DexCom has significantly lowered its guidance for the third quarter and full year 2024. The company is facing some headwinds that are sending investors running. Sales are declining, and the company now expects revenue to peak at $4.05 billion for the year, though it had originally forecast $4.35 billion. Big changes in guidance usually don’t inspire confidence in a company’s leadership, so why is the company experiencing this decline?
Firstly, the company is facing increasing competition in the CGM sector from competitors such as Abbott Laboratories and appears to be ceding market share to them. At the same time, the company has entered international markets. When growth slows in a company that enters new markets, investors rightly see warning signs.
DexCom’s leadership insists that these problems are temporary. I’m not so sure. For now, I would wait and see, watch the next few quarters’ results, and judge for yourself whether these problems are more permanent than the company admits.
CrowdStrike’s massive slip-up could be a huge buying opportunity
In mid-July, there was a major disruption that brought flights across the country to a standstill. The reason was a faulty update from CrowdStrike (CRWD -0.09%)a cybersecurity company whose software touches systems around the world. The update caused problems on servers for all kinds of critical organizations, including major banks, news organizations, healthcare providers and Delta Air Lines and other carriers.
This was not a good image for the company. After all, the company’s software is designed to protect against malicious actors taking down these systems from the outside. After the outage, CrowdStrike’s stock price immediately plummeted, down nearly 37% from the day before the news broke. I don’t want to downplay what happened – it was bad, as bad as perhaps the worst outage in IT history – but I don’t think now is the time to abandon ship.
How a company responds is often more important than the bug itself. So far, CrowdStrike is doing everything it can to fix the problem. And the scale of the outage shows just how big CrowdStrike’s business is. This is a company with large contracts in major industries. If it can survive the lawsuits it’s facing, especially from Delta, I think CrowdStrike will come out stronger.
Johnny Rice does not own any stocks mentioned. The Motley Fool owns and recommends Abbott Laboratories and CrowdStrike. The Motley Fool recommends Delta Air Lines and DexCom. The Motley Fool has a disclosure policy.
