Despite the robust growth of the stock market in 2023, several areas of distress marred the overall landscape. The S&P 500 surged mainly due to the performance of the Magnificent 7 stocks. Similarly, both the Dow Jones Industrial Average and Nasdaq 100 also witnessed significant gains.
While the impressive gains are noteworthy, the influence of the high-growth tech stocks on these indices cannot be overlooked. With market cap-weighted S&P and Nasdaq, and price-weighted Dow, the dynamic interplay of stocks has been a sight to behold.
That being said, the revelation of my portfolio’s underperforming stocks last year, coupled with the surprising outperformance of certain assets, has put me in a reflective mood. As I assess the wreckage, the burning question on my mind is this: Can these battered stocks claw their way back in 2024?
Genuine Parts (GPC)
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The stock that caught me off guard the most was auto parts retailer Genuine Parts (NYSE:GPC). Its decline of 18% last year ranked it as the third worst-performing stock in my portfolio.
Despite being a reliable long-term holding, the company’s stock witnessed a steep drop following third-quarter earnings. Although the earnings fell short of Wall Street’s expectations, both sales and profits increased, margins expanded, and it generated $733 million in free cash flow (FCF) during the first nine months of 2023.
The prevailing market conditions are still conducive for GPC stock. The elevated cost of new and used cars incentivizes current owners to extend the lifespan of existing vehicles, creating a favorable environment for Genuine Parts.
In my assessment, Genuine Parts emerges as the prime contender for a rebound in 2024. Furthermore, with a robust history of dividend increases spanning 68 years, and ample FCF to sustain dividends, the company remains poised for resurgence.
Walgreens Boots Alliance (WBA)
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One of the largest pharmacy chains, Walgreens Boots Alliance (NASDAQ:WBA) has been a sore point for years. Despite the indispensability of healthcare, the company has grappled with fierce competition from CVS Health (NYSE:CVS), Walmart (NYSE:WMT), Amazon (NASDAQ:AMZN), and Costco (NASDAQ:COST). This intense rivalry, alongside lagging foot traffic, the aftermath of the opioid crisis, and underperformance of medical clinics resulted in a 7% decline in the stock in 2024.
However, despite the recent dividend cut, which was a necessary measure to conserve cash, Walgreens may be poised to turn a corner in the remainder of the year. While not expected to top the charts, the company’s potential divestment of its U.K.-based Boots pharmacy and the execution of cost-cutting strategies could ignite growth in the shares in 2024.
Orion Office REIT (ONL)
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The most severe blow to my portfolio came from Orion Office REIT (NYSE:ONL), a real estate investment trust (REIT) specializing in U.S. office properties. Although I did not purchase the stock outright, it landed in my portfolio when another holding, Realty Income (NYSE:O), spun off its office property operations in 2021.
The challenges faced by an office REIT in a debt-dependent operating model were not unforeseen. With substantial reliance on debt for operations, particularly in a rising interest rate environment, the perils of such a business model were inevitably exposed when the Federal Reserve raised rates unprecedentedly last year.
Although the Federal Reserve has hinted at potential rate cuts, the precarious landscape looms large, casting a shadow of uncertainty. Despite possessing a robust property portfolio in attractive markets, high occupancy rates, and stable cash flows, the macroeconomic headwinds may prove to be too formidable. My outlook for Orion Office REIT in 2024 remains bearish, albeit retaining hope for the long haul.
On the date of publication, Rich Duprey held a long position in GPC, WBA, ONL and O stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.