To The Moon

It's been a tough year for stocks. Not even blue chips have been immune to the weakness. Despite its recent recovery effort, the Dow Jones Industrial Average (^DJI -0.14%) is down 12% year to date. About half of the Dow's stocks are down even more. In some cases, they're down a lot more.

Veteran investors of course know these beaten-down names are often the best buying opportunities. On the flip side, stepping into a stock solely because it's been so deeply devalued isn't enough -- there's still got to be a solid reason to own it at any price. Otherwise, there may be more downside left to dish out.

With that as the backdrop, here's some food for thought if you're currently unsure about adding some sold-off, high-profile blue chips to your portfolio.

Worst of the worst

If you're wondering, the year's worst-of-the-worst Dow stocks are Salesforce (CRM -0.56%), Walt Disney (DIS 0.11%), and Nike (NKE -0.54%), down a respective 28%, 33%, and 35% since the end of 2021. Notably, none of them are participating in the market's rebound effort that's been underway since the Dow Jones Industrial Average made a bottom in mid-June.

CRM data by YCharts

Blame economic and geopolitical turbulence, mostly. Already grappling with broken supply chains, consumers are now feeling the sting of inflation. Fears of a recession are growing too, prompting people to further cut their discretionary budgets. Companies are starting to clamp down on spending as well. Disney, Nike, and Salesforce are among the companies most vulnerable to this dynamic.

Still, these are solid companies with bright long-term futures. You can buy into all of them at a more than 30% discount from recent highs. Not bad.

For the record, though (and as was already noted), buying stocks just because they're deep in the red isn't a great reason to buy them. Those sell-offs are often deserved, with possibly more selling on the way. But if there was ever a case to consider heavily sold-off blue chips without worrying so much about the backdrop, this is it.

Too distracted to see the bigger picture

Don't misread the message. Investing will always be a case-by-case, company-by-company affair. You should be able to identify at least three specific reasons to step into a particular position, and at the same time, the company in question shouldn't be facing any glaring potential pitfalls. The stock's recent price action typically doesn't factor into the equation.

It just so happens that in these three cases, investors have been collectively ignoring reasons to own these Dow stocks, and instead have been pricing in only half the bigger picture.

Take Disney as an example. Shares aren't just down 36% for the year. They're half their value reached in March 2021, largely in response to slowing streaming growth, higher costs, and a lingering pandemic that's keeping people away from Disney's theme parks. The company's also been caught up in sociopolitical matters that have led to a handful of boycotts.

What's been lost in all the noise, however, is that Walt Disney is still one of the premier names in the entertainment and travel business. That's not going to change anytime soon.

Nike's challenge is different, although no less tricky. It's heavily reliant on foreign production of its goods, and equally reliant on a means of delivering finished products to their final point of sale to consumers. Supply chain backups and manufacturing delays are a major headache.

Except, the sports apparel powerhouse may not be in the dire straits its stock's 40% slide since November implies. Revenue for its fourth fiscal quarter ending in May was up 3% after adjusting for currency fluctuations, and higher by 6% for the full year. That's not red-hot growth, but it's also not atypical of its pre-pandemic growth pace.

In other words, Nike is pushing through the headwind. And analysts' forecasts for revenue growth of 8% and 10% this year and next year, respectively, with sharp earnings growth of 22% next fiscal year suggest the company will remain resilient even if the economy continues to weaken.