We recently compiled a list of the 10 Worst Performing Blue Chip Stocks in 2024. In this article, we are going to take a look at where Adobe (NASDAQ:ADBE) stands against the other worst performing blue chip stocks in 2024.
Strong Market Performance Amid Uncertainty
The third quarter ended with a bang, with all the major indices near record highs as investors shunned macroeconomic instability, soaring geopolitical tensions and U.S. election uncertainty. Strong gains in the quarter were fuelled by expectations of lower interest rates heading into year-end and growing expectations of a soft landing of the U.S. economy.
Artificial intelligence has been a big success story that has helped push the equity markets to record highs. Against the overall trend, the current bull market had a better second year, up 33% compared to the historical average of 13%, and a better first year, up 22% compared to the historical average of 44%, according to BofA. It’s also important to remember that even bull markets’ third years of growth can be rocky.
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While the S&P 500 has gained over 60% since the 2022 lows, researchers at BofA note that there could be a significant pullback in the near future.
“Historical studies suggest that the third year of a typical bull market tends to be unremarkable as a mild bout of de-rating overshadows humdrum earnings growth,” BofA equity strategist Ritesh Samadhiya said in a note to clients.
Economic Concerns and Investment Opportunities
While voicing concern that the economy is running at a hotter-than-desired pace, Federal Reserve Governor Christopher Waller hinted that future interest rate cuts would be less drastic than the significant move in September. According to policymakers, recent employment, inflation, GDP, and income reports indicate that the economy might not slow down.
“While we do not want to overreact to this data or look through it, I view the totality of the data as saying monetary policy should proceed with more caution on the pace of rate cuts than was needed at the September meeting,” Waller said in prepared remarks for a conference at Stanford University.
The sentiments come as investors remain cautious about the long-term outlook amid soaring geopolitical tensions and economic uncertainties. The growing uncertainties have been one of the catalysts behind some of the worst-performing blue chip stocks in 2024.
Nevertheless, some underperforming stocks may allow investors to purchase the long-term decline. However, many are just dealing with issues unique to their company, such as bloated balance sheets or broken business models.
It might be a while before the market bounces back. In the interim, investors should be aware of the market’s possible value stocks. Even if it is not popular or profitable in the short term, the long-term benefits of investing wisely and deviating from the crowd can be significant, according to the contrarian investing philosophy.
Investing during a market downturn may present chances for sizable returns in the long term. We examine the top 10 blue-chip losers to date and potential opportunities for investors to acquire them.
Adobe, software
Our Methodology
To prepare this article, we began by listing all the holdings of the various blue chip ETFs like E.A. Bridgeway Blue Chip ETF, Vanguard Mega Cap ETF, and DOW 30. We then sourced the year-to-date share price returns for each company. Based on these returns, we ranked the companies in descending order.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Adobe (NASDAQ:ADBE)
Year to Date Return: -14.02%
Number of Hedge Fund Holders: 107
Adobe (NASDAQ:ADBE) became the first software company to adopt a subscription model for its solutions. While the company has enjoyed tremendous success in offering products, services, and solutions that enable individuals, teams, and enterprises to create, publish, and promote content, it finds itself at a crossroads.
The stock is down by about 14.02% for the year, affirming its status as one of the worst-performing blue chip stocks in 2024. The underperformance comes against concerns about the company’s long-term prospects.
Adobe (NASDAQ:ADBE)’s Digital Media division, which includes its flagship Photoshop and Illustrator, accounts for almost three-quarters of its total revenue. The remainder is derived from its enterprise clients’ Digital Experience services. Over the previous two fiscal years, both business divisions struggled with slower sales growth.
The company’s practice of charging prorated penalties to users who terminate their subscriptions after the first 14 days has been the subject of a Federal Trade Commission (FTC) investigation. The FTC could make its cloud services less sticky by prohibiting its cancellation fees, while Adobe acknowledged that it might have to pay “significant monetary costs or penalties” to resolve that investigation.
Amid the struggles, Adobe (NASDAQ:ADBE) delivered solid third-quarter results, delivering $5.41 billion in revenue, an 11% increase from the previous year. Adobe’s earnings-per-share (EPS) totalled $3.76 as opposed to a range of $3.45 to $3.50.
Nevertheless, Investors had an issue with Adobe’s guidance for the year as it fell short of Wall Street’s expectations. While Wall Street was expecting roughly $5.61 billion, Adobe (NASDAQ:ADBE) projected between $5.5 billion and $5.55 billion for the fourth quarter. This would suggest growth of 8.9% to 9.9% annually, which some investors might find a little slow.
In terms of these valuation metrics, Adobe is costly as it trades at a price-to-earnings multiple of 24. However, it is marginally below its historical averages on both counts.
Polen Global Growth Strategy stated the following regarding Adobe Inc. (NASDAQ:ADBE) in its Q2 2024 investor letter:
“With Adobe Inc. (NASDAQ:ADBE), in some ways, we see it as a microcosm of the market’s “shoot first, ask questions later” approach to categorizing AI winners and losers. In the early part of last year, Adobe came under pressure with a perception that generative AI (GenAI) would represent a material headwind to their suite of creative offerings. In short order, the company introduced its GenAI offering, Firefly, which shifted the narrative to Adobe as a beneficiary with a real opportunity to monetize GenAI in the near term. Earlier this year, that narrative was again challenged as the company reported a slight slowdown in revenue growth. Results in the most recent quarter were robust as the company raised its full-year forecast across a number of key metrics and showcased better-than-expected results.”
Overall ADBE ranks 5th on our list of the worst performing blue chip stocks in 2024. While we acknowledge the potential of ADBE as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ADBE, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.