Dow growth stocks in 2023: Can Intel, Disney, 3M, Microsoft and Apple recover?
13:51, 29 December 2022
Earlier in 2022 saw one of the largest tech stock sell-offs in recent times, spurred by four-decade high inflation in the US. Interest rate hikes by the US Federal Reserve, Bank of England and most recently, the European Central Bank have also contributed to this situation, as well as a stronger US dollar (DXY), due to its impact on foreign tech sales.
This has led to tech investors being much more cautious, opting to make a switch from growth stocks to value stocks. A rapid series of shocks also came in the form of several mass layoffs as well as hiring freezes by Microsoft, Apple, Meta and more.
Caught in the sell-off maelstrom were some of the biggest global tech companies, Intel (INTC) , 3M (MMM), Walt Disney (DIS), Apple (AAPL)and Microsoft (MSFT). This has led to a key question: are we likely to see more trouble for these growth tech stocks in the new year?
Intel (INTC) has dropped more than 50% this year already
Intel chart showing the stock's 50-day and 200-day moving average – Credit: TradingViewIntel
Intel has already been down about 50.6% over the course of the year, as well as about 34% over the last 5 years. At the time of writing, shares were trading at about $25. This has largely been due to reducing rates of return on capital employed (ROCE), even with increasing amounts of capital invested. Currently, Intel’s ROCE is about 5.5%, which is vastly below the semiconductor industry average of about 15%.
This could potentially reflect poor attempts at growth investments, which are clearly not working in the current market scenario. Not surprisingly, this has already caused some concern among investors, which has been reflected in sell-offs.
Recently, Intel also announced in a landmark move that it would be dividing its Accelerated Computing Group (AGX) into two parts, in order to streamline their data centre and consumer graphics branches. This has led to worrying speculations of whether Intel is planning to abandon its Arc GPUs altogether, which has further led to decreasing confidence in the stock.
Furthermore a US export control restriction on China, as part of the ongoing US-China chip conflicts, has also caused significant setbacks to Intel, which still depends majorly on Chinese revenues. This, along with ongoing supply chain and shipping issues are likely to persist into the first quarter of the next year at least.
However news of Intel and VLSI Technology finally settling a $4bn patent dispute has gone a long way in giving investors some hope for the future of the company.
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Walt Disney
Walt Disney has been down about 46% this year, trading at about $84 at the time of writing, which was more than a 6-year low. Not only that, but Disney has already missed earnings expectations by approximately $1bn in the fourth quarter of the year, with dismal forecasts from top executives for 2023 as well.
Although the company quickly went into damage control mode by reinstating Robert Iger as CEO, investor confidence has taken a significant hit since then. This has also been triggered by the recent major deals undertaken by Disney, such as the acquisition of TV and film assets from 21st Century Fox and jostling for streaming space with Netflix.
This has been made worse by the woes faced by streaming companies in the last few months, with streaming subscriber numbers declining, as well as advertising and marketing revenues falling too.
The next year is not expected to bring much relief either, as competition in streaming services intensifies, with subscribers becoming more discerning and bundle streaming likely to become more popular in the coming months, to keep costs lower.
3M
3M is down about 33.4% so far this year, trading at about $119 at the time of writing, with investors getting increasingly spooked by the company’s CEO, Michael F. Roman warning the market about 3M facing increasing uncertainty and increasing weakness in consumer-facing segments.
By the fourth quarter of 2022, 3M’s revenue had already fallen about 4% year-on-year, as the company continued to battle with supply constraints and steadily increasing input costs.
Furthermore, the company has faced an astonishingly high number of litigations, estimated to be above 300,000 regarding its earplugs, which have been reported to cause hearing damage. This has awakened investors to the high litigation risk the company poses, further reducing its appeal.
3M is expected to announce earnings per share of about $2.41 in its next quartertly earnings period. However, the risk of the earphone litigations alone is estimated to potentially go up to multiple millions of dollars, if not billions. This is likely to continue to considerably affect 3M’s profitability in the coming months.
Microsoft
Microsoft’s stock is down about 31% year-to-date, at about $239 at the time of writing, following the release of the company’s fiscal year 2023’s first quarter earnings. This has highlighted that consumers are spending considerably less on home items in the last few months.
Furthermore, the company has also warned markets about sharply dwindling interest in the personal computer industry, as well as decreasing cloud expansion. Moreover, the company is also facing falling revenues from its top earner, which is Microsoft Azure.
This is largely due to soaring electricity and energy prices, especially as the world continues to struggle with the ongoing energy crisis, worsened by the Russia-Ukraine conflict. This is unlikely to improve much in the coming months, as the Ukrainian conflict still shows little signs of being resolved soon.
In the coming months, the company is likely to see decreased revenues from Windows devices as well as Surface devices as rising inflation decreases disposable income considerably. Furthermore, Microsoft may also have to pull back spending on its LinkedIn and Search platforms, which is likely to lead to fewer sales as well.
Apple
Apple’s share price has fallen about 30% so far this year, trading at about $129 at the time of writing. This was made worse by the company announcing hiring freezes, following a recent wider trend of big tech companies going for layoffs and hiring freezes.
Apple has also been hugely affected by rising Covid-19 cases in China, as the country continues to deal with on-again, off-again zero-Covid restrictions as well as ongoing protests about the same.
Since Apple relies majorly on China for its manufacturing needs, the current restrictions across the country are severely affecting its production and supply chain. Furthermore, one of the company’s largest factories in Zhengzhou has been facing ongoing violent protests, due to workers’ rights not being protected, as well as concerns about pay.
This has gone a long way to heavily shake investors’ confidence in the company and painted it in quite a negative light, which is likely to take a toll on the coming few months as well. Speculations are also rife that the stock price could potentially fall to below $100 in the next year.
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