March was another successful month for the S&P 500 (SNPINDEX: ^GSPC). The broad-market index beat the Dow Jones Industrial Average and Nasdaq Composite by 3.1%. The S&P 500 scored its greatest first-quarter increase since 2019.
It officially entered its bull market in January and is up 10.1% this year. However, not all S&P stocks won last month. Let's examine if the three worst-performing S&P 500 equities in March are worth buying on the downturn.
1. Lululemon Athletica (16.3% drop) After reporting earnings, Lululemon Athletica (NASDAQ: LULU), Nike, On Holding, and Foot Locker all slumped in March. Luluemon plummeted 15.8% on March 22 after reporting fourth-quarter earnings, making it the worst S&P 500 performer of the month. Lululemon reported another strong quarter with revenue up 16% to $3.21 billion and adjusted EPS up 20% to $5.29, beating forecasts.
Due of its high price, Lululemon's stock tends to tumble at the slightest sign of trouble. The fourth-quarter results were good, but 2024 guidance disappointed. After accounting for the extra week, the business predicted 10%-11% revenue increase to $10.7 billion-$10.8 billion, down from $10.9 billion. At the midpoint, it estimates $14.00-14.20 EPS, up 16% year over year.
Lululemon's sell-off appears to be about valuation rather than a business issue. The business is still doing well, and guidance is not real results, so investors shouldn't overreact. Stocks are worth buying on dips.
2. Southwest (-14.9%) Southwest Airlines' (NYSE: LUV) drop last month wasn't due to disappointing results. Southwest sold off after cutting its guidance in reaction to Boeing's quality control crisis. Southwest decreased its revenue per available seat mile (RASM) from 2.5%-4.5% to 2%. It boosted operations and fuel cost guidance somewhat.
Boeing decreased Southwest aircraft deliveries from 79 to 46, which may affect growth for the rest of the year. Southwest and the airline industry are uneasy due to the Boeing issue. Given that, investors should wait for additional clarity before buying the stock.
3. Zoetis (-14.7%) Like Southwest and Lululemon, pet pharmaceuticals leader Zoetis (NYSE: ZTS) faltered last month, although not due to a single event. Zoetis fell on broader pet industry weakness this month, as other pet stocks fell.
Zoetis underperformed bottom-line projections and issued negative outlook for 2024 in its February fourth-quarter results report, indicating that it anticipates pet sector difficulties to endure post-pandemic. The stock faces a European antitrust probe into whether Zoetis impeded the launch of a dog pain treatment. The news puts Zoetis at risk of costly fines.
At a price-to-earnings ratio over 30, Zoetis shares remain costly despite the sell-off. The company is the leader in pet medications and has a great track record, but investors should wait until the pet market recovers from the post-pandemic downturn before buying the stock.
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