The stock market was mixed on Tuesday morning, with some market benchmarks building on their record runs while others consolidated their recent gains. As of 10:30 a.m. ET, the Dow Jones Industrial Average (DJINDICES:^DJI) was up 173 points to 36,476. The S&P 500 (SNPINDEX:^GSPC) made yet another all-time high by rising 7 points to 4,799, but the Nasdaq Composite (NASDAQINDEX:^IXIC) was lower by 7 points to 15,864, bucking the upward trend.
In general, stock markets have done quite well in 2021, with the Dow up around 20% on a total return basis with just a few days left in the year. However, there’ve been some big disappointments among the Dow 30, and in particular, Disney (NYSE:DIS) and Verizon Communications (NYSE:VZ) have failed to deliver on the potential that many investors saw coming into the year.
A dilemma for Disney
Disney has been by far the worst performer in the Dow this year, down more than 15%. The entertainment and media giant remains strong in terms of its fundamental business prospects, but Disney had to deal with difficulties on two fronts that proved impossible to overcome.
On the one hand, investors were counting on the reopening of Disney’s theme parks, as well as more movie theaters showing Disney content, to be a driver of growth in 2021. That happened to some extent, but the fact that the pandemic is far from being under control amid the delta and omicron variants limited Disney’s ability to see conditions in these key parts of its business return to pre-pandemic levels.
Meanwhile, the Disney+ subscription service remained popular, but growth slowed dramatically in 2021. That stemmed partly from its quick success and partly because viewers sought to get out of their homes and seek out other forms of entertainment.
Looking ahead, Disney has plenty of valuable content expected to hit the theaters — and Disney+ — in 2022. Shareholders can hope for a better performance, as well as the return of the dividend that the company suspended over the past year.
Verizon has the 5G blues
Meanwhile, Verizon Communications saw its stock price fall 10% in 2021. A roughly 5% dividend yield cut that loss in half on a total return basis, but that still lagged the overall Dow considerably.
At first glance, Verizon would seem to be in an ideal position to benefit from a big growth trend. The rise of 5G wireless communication networks has opened up a new era for wireless carriers, and that’s put a premium on high-quality service. Verizon has always worked hard as a first-mover with network upgrades, and customers are routinely willing to pay premium prices in order to ensure access to the Verizon network.
However, a few things worked against Verizon in 2021. Investors don’t see the company as a growth stock, instead treating it as an income-producing quasi-utility. Moreover, defending its leadership position has forced Verizon to spend billions of dollars to build out its 5G network infrastructure and also purchase the wireless spectrum assets necessary to provide ample coverage.
Nor is Verizon out of the woods just yet. Industry peers suggest that subscriber growth might actually slow, as many consumers have already upgraded to 5G-enabled devices. That won’t stop Verizon from continuing to be a cash cow with a lucrative dividend, but it might make its stock less attractive in comparison to companies with greater growth prospects.
Find your balance
Looking for bargains among beaten-down Dow stocks has often been a smart strategy. Verizon and Disney aren’t sure bets to rebound in 2022, but they have solid long-term prospects that can serve those with an extended time horizon.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.