It was terrific last year for the S&P 500, but looking at some of the worst-performing S&P 500 stocks is still worth it. The benchmark index jumped 24% and hit a new all-time high. That’s the textbook definition of a bull market. But we need some asterisks. It wasn’t a broad-based run higher. The popular index was carried by just a handful of stocks, the Magnificent 7. Remove them from the equation and the S&P was up only a couple of percentage points.
That’s why simply buying an index fund is the best investment decision for many investors. Because the competing forces of fear and greed rule us, we either buy stocks too late or sell them too soon. Trying to time the market is a fool’s errand. It’s why even Warren Buffett owns the SPDR S&P 500 ETF Trust (NYSE:SPY) and the Vanguard 500 Index Fund ETF (NYSE:VOO).
Of course, Buffett is a stock picker. He doesn’t passively manage Berkshire Hathaway‘s (NYSE:BRK-A, NYSE:BRK-B) portfolio. If all he did was buy an index there would be no reason for you to buy Berkshire stock. Instead he looks for good business trading at a discount to its intrinsic value.
Some of the biggest discounts today can be found in the worst-performing S&P 500 stocks. Just because they tanked in 2023 doesn’t make them a buy, though. We need to look more closely at their business to see if the discount is worth it. What follows are the three deepest bottom dwellers on the index. Let’s see whether we should add them to our portfolios.
Worst-Performing S&P 500 Stocks: Dollar General (DG)
Deep discount dollar store operator Dollar General (NYSE:DG) lost 45% of its value in 2023. For a company that sells most of its products for $10 or less, it’s hard to imagine it doing so poorly. Yet even its cheap goods weren’t resonating with customers. And that was just the problem.
Consumers flush with stimulus cash purchased discretionary items en masse during the pandemic. Dollar General stocked up on such goods and failed to read the signs over the past few years that sentiment changed. As inflation soared and interest rates roared higher, shoppers became more choosy with their wallets. They began buying more basic goods and everyday needs. The dollar store chain, however, was still flush with discretionary items, and consumers shopped elsewhere.
Fortunately, management realized the problem and is correcting course. It is stocking more consumable goods on its shelves, which creates more return trips to replenish them. Sales are rising, but it’s not a quick U-turn to make. Comparable store sales are still down. Yet, with a new management team in place and the problem identified, Dollar General seems a good bet to rebound in 2024.
It was a long trip lower across the entire year for FMC (NYSE:FMC), which lost half its value last year. The global destocking trend of insecticides, herbicides, and fungicides hurt the agricultural stock. It was far more severe than the company anticipated, though the situation is improving. FMC’s financials will still look ugly, and management expects full-year revenue to be down over 20% from last year. It expects profits will also be halved.
CEO Mark Douglas told analysts, “The crop protection market is working through the most severe channel destock ever on record.” Although FMC’s stock is moving higher again, rising 25% off its low point, don’t expect a quick reversal to occur. Douglas is looking to 2026 as the time when it should be past this 100-year flood event.
Yet that could make now a perfect time to buy FMC stock. Purchasing cyclical stocks during their downturn ensures you remain invested when the inflection point hits. And the stock looks cheap. It trades at the same level it did 10 years ago, and at 1.5x sales, it is well below FMC’s historical averages.
FMC’s portfolio of agricultural products is essential to farming and still needed. Look for FMC to recover. It might not be in 2024, but certainly beyond.
Enphase Energy (ENPH)
The biggest loser in the S&P 500 was Enphase Energy (NASDAQ:ENPH). The largest manufacturer of residential solar inverters lost 54% of its value in 2023 as the solar market slumped. Inflation and the rapid rise in interest rates put new solar installations out of reach for many consumers.
There are only two major manufacturers of inverters, Enphase and SolarEdge Technologies (NASDAQ:SEDG). Enphase has a 50% market share, while SolarEdge commands a 40% share. Tesla (NASDAQ:TSLA) is a distant third at 5%. Inverters convert the direct current ( ) produced by solar panels into the alternating current ( ) used in homes.
The solar industry is cyclical and is trending lower now. Analysts forecast that after growing 31% in 2021 and 40% in 2022, the solar market will only rise 9% in 2023 and contract this year.
The one hope for Enphase and the solar industry is that the Federal Reserve halted its aggressive interest rate policy. It might even cut rates again in 2024. If the cost of a system installation drops significantly, it might spur new demand. There is not much clarity in the outlook, so a rebound by Enphase Energy this year looks doubtful.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.