Strategies for Handling These Three S&P 500 Stocks Following a 10% Decline
Investors are facing a troubling period as several major tech and industrial stocks experience a downturn. Last week, a number of companies, including Intel, Twilio, Palo Alto Networks, and UnitedHealth Group, saw their shares drop by more than 10%.
Intel, a leading manufacturer in the tech industry, has been dealing with a pause in its manufacturing plant and asset sales, which has caused concern among investors. The company took a $1.9 billion restructuring charge in the second quarter, resulting in a loss of $0.45 in GAAP earnings per share. Despite this, speculators correctly bet that CEO Lip-Bu Tan's visit with President Trump would turn out well, and Trump later called Tan's success story "amazing." However, Intel's PC and server chip businesses risk falling behind that of Advanced Micro Devices (AMD).
Twilio, a communication technology company, saw its share price drop by 12.90% in the last month. Despite this, the company's EPS and revenue beat expectations in Q2. Twilio is also planning to raise prices in the self-service messaging business, which could help boost its revenue. The company's revenue for 2025 is expected to grow organically by 8% to 9%. Twilio's ISV customer growth is healthy, with traction strengthening across various sectors.
Palo Alto Networks, a cybersecurity company, saw its share price drop by 7.50% in the last month. The company recently announced an acquisition of identity security firm CyberArk for $25 billion. The acquisition will be paid for with $45 in cash for each CYBR share and 2.2005 shares in PANW common stock. Palo Alto Networks trades at a steep valuation, scoring an F on value, but its forward P/E of 106.6 times reflects its growth potential. The company is rated a "Hold" on Seeking Alpha's quant ranking.
Other companies experiencing a downturn include IBM, Old Dominion Freight Line, UPS, Lululemon Athletica, and CrowdStrike and Cloudflare, which trade at higher multiples on a price/sales basis than CyberArk.
The overall US equity market valuations are currently elevated, trading roughly in line with fair value estimates. However, many other sectors, including industrials, face risks due to anticipated economic slowdown. The Federal Reserve's policy outlook is uncertain, with no immediate cuts expected, adding to market unease and the potential for increased volatility. Given the economic growth is expected to decelerate through 2025, sectors reliant on economic expansion may require "significant margins of safety," indicating stocks like IBM, industrial-related names (e.g., WAB), and logistics-focused UPS might underperform or see continued pressure.
Investors should be cautious, seek margin of safety, and closely watch upcoming earnings reports and Fed signals. Broadly, the market is vulnerable to a 10-20% correction given stretched valuations and economic uncertainties, which could impact these stocks negatively before any recovery.
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