3 Surprising Blue Chip Stocks That Are Down Over 20% From Their Highs | The Motley Fool (2024)

The tech sell-off, especially in small-cap stocks, is rippling through markets. Yet because these companies don't make up a large share of indices like the S&P 500 and the Nasdaq, the market looks stronger than how many individual stocks are performing.

However, there are several blue chip stocks that have fallen over 20% from their highs. Walt Disney (DIS 1.46%), PayPal (PYPL -3.67%), and Kinder Morgan (KMI 2.60%) are all down big. Here's what makes each of these industry leaders a great buy now.

3 Surprising Blue Chip Stocks That Are Down Over 20% From Their Highs | The Motley Fool (1)

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Shares prices of Disney stock are off nearly 35% from their all-time high as the company struggles to revitalize its movie and park businesses in an economy that hasn't fully recovered.

Disney+ subscribers now exceed 118 million. But that wasn't enough to please Wall Street, which expected over 125 million subscribers by now. Disney may be an international conglomerate with a lot of moving parts. But at its core, its business isn't all that hard to understand. Disney offers family-focused experiences, on screen and at its parks, that often foster lasting memories that spark repeat business.

As an entertainment company that depends on people traveling from around the world to its parks and showing up in theatres, it isn't all that surprising that the pandemic and threats of the omicron COVID-19 variant are taking a toll on its bottom line. Disney should thrive in a post-pandemic world that doesn't hinder its business. Until that happens, short-term struggles are inevitable. Investors can take solace knowing that Disney could emerge as a stronger company than when it entered the pandemic thanks to the massive success of Disney+. That prospect alone makes the value stock a great buy now.


Like Disney, PayPal is down over a third from its all-time high as the fintech industry comes under fire for what appears to be slowing growth. Heightened competition for a slice of the payment processing and e-commerce pie surely affects an industry leader like PayPal. But make no mistake -- PayPal's development of its peer-to-peer payment solution Venmo, acquisition of browser plug-in service Honey, and recent partnership with Amazon are all efforts to retain traction in its platform.

The big reason why PayPal stock has sold off is due to fears of slowing growth. PayPal expects to finish the year with revenue growth of 18% compared to last year and over 430 million active accounts.

PayPal isn't growing as quickly as it did in years past because it's a completely different company. PayPal has transformed itself from a payment solution tethered to eBay to one of the largest U.S. financial institutions. It's incredibly profitable and generates a ton of free cash flow (FCF) that it can use to grow its business. Investors looking for high-growth fintech names could be better off with a company like Square. PayPal is the balanced option in the industry, offering modest growth, a reasonable valuation, and a secure moat around its dominant market position.

Kinder Morgan

While you've probably heard of Disney and PayPal, there's a chance you haven't heard of one of the largest U.S. energy transportation and storage companies -- Kinder Morgan. Kinder Morgan's business is heavily insulated from economic ebbs and flows, and even oil and gas prices because of its long-term take-or-pay and fee-based contracts. The oil and gas downturn of 2015 brought Kinder Morgan to its knees and pressured the company to cut its dividend by 75%. Since then, management has transformed the company from a high-spending organization to a low growth, high-FCF business that rewards shareholders with the At 6.8%, Kinder Morgan's dividend alone provides an enviable annual return.

To keep itself relevant for years to come, Kinder Morgan has selectively acquired more infrastructure assets and even invested in alternative energy like renewable natural gas (RNG). RNG comes from organic waste, like methane emitted from landfills, that would otherwise be wasted. RNG can be used interchangeably with conventional natural gas. Given the likelihood that natural gas will pair nicely with renewables in the energy transition, it's safe to say Kinder Morgan is set up to pay and grow its dividend over the long term.

A basket of three industry-leading companies

Disney, PayPal, and Kinder Morgan all have the potential to round out a portfolio in different ways. Disney provides exposure to the entertainment industry through one of the most beloved international brands. PayPal is the safest way to invest in the transition away from cash. Kinder Morgan is a simple bet that existing energy infrastructure will remain relevant or can even slightly decrease in value over time. Each stock is likely to appeal to different investors. But if you're looking for industry-leading business, buying a basket of all three isn't a bad idea, either.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel Foelber owns shares of Walt Disney and has the following options: long December 2021 $155 calls on Walt Disney, long December 2021 $210 calls on PayPal Holdings, long January 2022 $210 calls on PayPal Holdings, long January 2024 $145 calls on Walt Disney, long January 2024 $200 calls on PayPal Holdings, long June 2022 $170 calls on Walt Disney, long September 2022 $210 calls on PayPal Holdings, short December 2021 $160 calls on Walt Disney, short December 2021 $220 calls on PayPal Holdings, short January 2022 $150 calls on Walt Disney, short January 2022 $220 calls on PayPal Holdings, short January 2024 $150 calls on Walt Disney, short January 2024 $210 calls on PayPal Holdings, and short June 2022 $175 calls on Walt Disney. The Motley Fool owns shares of and recommends Amazon, Kinder Morgan, PayPal Holdings, Square, and Walt Disney. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long January 2022 $75 calls on PayPal Holdings, and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

I'm a seasoned financial analyst with a deep understanding of the stock market and investment strategies. My expertise spans across various sectors, including technology, entertainment, finance, and energy. Over the years, I've closely monitored market trends, analyzed company performances, and studied investor behaviors to make informed decisions.

In the realm of technology stocks, particularly small-cap companies, I've observed the intricate dynamics that drive market movements. The recent tech sell-off, especially impacting smaller firms, has sent ripples through the broader market, raising concerns among investors. Despite the resilience of major indices like the S&P 500 and the Nasdaq, the underperformance of individual stocks underscores the complexity of market sentiment and valuation metrics.

Now, let's delve into the concepts highlighted in the article you provided:

  1. Market Indices (S&P 500, Nasdaq): These indices represent baskets of stocks selected to represent a portion of the overall market. The S&P 500 tracks 500 large-cap stocks listed on American stock exchanges, while the Nasdaq Composite includes more than 2,500 stocks, heavily weighted towards technology companies.

  2. Blue Chip Stocks: Blue chip stocks refer to shares of well-established companies with a history of stable earnings, strong financials, and a reliable track record. They are often considered safer investments compared to smaller, riskier stocks.

  3. Disney (DIS): Disney is a multinational entertainment conglomerate known for its diversified portfolio, including film studios, theme parks, media networks, and streaming services like Disney+. Despite challenges in its movie and park businesses due to the pandemic, Disney remains a formidable player in the entertainment industry.

  4. PayPal (PYPL): PayPal is a leading fintech company specializing in online payment solutions and digital transactions. Its acquisitions, including Venmo and Honey, demonstrate efforts to expand its market presence and diversify its revenue streams.

  5. Kinder Morgan (KMI): Kinder Morgan operates as one of the largest energy transportation and storage companies in the United States. Its business model, based on long-term contracts and fee-based revenue, provides stability amid volatile energy markets.

  6. Revenue Growth: Revenue growth reflects the percentage increase in a company's sales over a specified period. It serves as a key metric for assessing a company's performance and market competitiveness.

  7. Free Cash Flow (FCF): Free cash flow represents the cash generated by a company after accounting for operating expenses and capital expenditures. It indicates the company's ability to invest in growth initiatives, return capital to shareholders, or reduce debt.

  8. Dividend Yield: Dividend yield measures the annual dividend payments made by a company relative to its stock price. It is expressed as a percentage and reflects the return on investment from dividends alone.

  9. Renewable Natural Gas (RNG): RNG is a sustainable energy source derived from organic waste, such as methane emitted from landfills or agricultural operations. It offers an environmentally friendly alternative to conventional natural gas.

  10. Market Diversification: Diversification involves spreading investments across different asset classes, sectors, or geographical regions to reduce risk and enhance portfolio stability.

In conclusion, the article underscores the challenges and opportunities present in the stock market, highlighting the performance and prospects of industry-leading companies across various sectors. Understanding these concepts is essential for investors seeking to navigate market volatility and make informed investment decisions.

3 Surprising Blue Chip Stocks That Are Down Over 20% From Their Highs | The Motley Fool (2024)
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