After a challenging 2022 that saw the S&P 500's value decline by over 19%, 2023 was a much-needed rebound year. The U.S. stock market's most followed index finished 2023 up over 24%, with a 4.4% December rally to close things out.
While the last month of the year was good to the S&P 500, not all of its constituents witnessed a similar degree of success. Three companies in the S&P 500 finished December down over 9%.
| Company | December 2023 Decline |
|---|---|
| Oracle (NYSE: ORCL) | 9.3% |
| Aon(NYSE: AON) | 11.4% |
| Everest Group(NYSE: EG) | 13.9% |
Data source: YCharts. Percentage decline rounded to the nearest tenth of a percentage.
Considering these less-than-ideal drops in December, investors may be wondering if now is the time to buy the dip on the three companies. Let's take a look.
1. Oracle
Oracle is one of the largest tech companies in the world, specializing in enterprise, database, and cloud technology and software. It finished 2023 up 29%, but December wasn't too kind to the company.
Much of Oracle's December woes can be attributed to its one-day 12% drop on Dec. 12. Oracle reported disappointing revenue, and investors didn't take it too lightly. Its largest business segment, cloud services and license support, increased revenue by 12% year over year (YoY), but that was the only positive segment. The rest were down YoY:
| Business Segment | Percentage of Revenue | YOY Decline |
|---|---|---|
| Services | 11% | (2%) |
| Cloud license and on-premise license | 9% | (18%) |
| Hardware | 6% | (11%) |
Data source: Oracle Q2 fiscal year 2024 financial results. YOY = year over year.
With Oracle having only a 2% market share of global cloud services, it makes sense that investors would be disappointed with its lack of growth, while other big tech companies' cloud businesses seem to be trending in a more positive direction.
2. Aon
Aon is a professional services and management consulting company. It operates in industries like risk management, human resource consulting, and insurance brokerage. In fact, it's the largest insurance broker in the world.
Aon's stock took a tumble in December, largely because of the 6% drop it had on Dec. 20 after announcing its plans to buy middle-market insurance broker NFP for $13.4 billion ($7 billion in cash and $6.4 billion in Aon stock).
The agreement should help Aon get more presence in the fast-growing mid-market segment, but it was met with pushback from investors, likely because of the price tag and potential integration concerns.
At that price tag, Aon will need a significant return on investment to justify dishing out $7 billion in cash while its free cash flow is simultaneously decreasing (down 4% YoY through Aon's first three quarters of 2023). The high price tag leaves little room for error for Aon to extract value from the deal.
3. Everest Group
Everest Group (formerly Everest RE Group) is a reinsurance company specializing in property and casualty reinsurance. Unlike traditional insurance for your home or car, reinsurance provides insurance for insurance companies. This helps manage some of the industry's risks and keeps it relatively stabilized.
In the third quarter of 2023, Everest Group reported almost $4 billion in revenue, up around 29% year over year. While that's great news, the could-be-better news is that Everest Group owns a lot of fixed-income investments, so the numbers could be a bit misleading about the company's actual business performance.
Through the first three quarters of 2023, Everest Group's net investment income was $1.02 billion -- considerably more than the $620 million in the same time frame in 2022.
When the Federal Reserve kept interest rates unchanged in December, and rumors of them lowering in 2024 began circulating, investors probably began to worry about the effects it would have on Everest Group's investment income and overall revenue.
Question marks lead me to choose an S&P 500 ETF instead
Oracle and Aon have both outpaced the S&P 500 over the past decade. Everest Group has underperformed the S&P 500 in that span, but it's picked up steam, returning over 54% to the S&P 500's 26% in the past three years.
Despite that, there are some legitimate concerns with each company. Oracle isn't competitive enough in a cloud space that's been a huge growth area for other big tech companies. Aon's cash flow from its operations has decreased YoY, and its recent acquisition adds more financial pressure on the company. And Everest Group could see a significant change in investment income and revenue when interest rates lower, as anticipated.
Right now, I would rather trust investing in an S&P 500 exchange-traded fund (ETF) like the Vanguard S&P 500 ETF or SPDR S&P 500 ETF Trust. Each of these ETFs will give you access to all three companies (albeit relatively small positions) and doesn't come with the question marks facing each company.
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Stefon Walters has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Oracle and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
