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It's been a rough year for Dow Jones Industrial Average ( ^DJI -0.31% ) consumer stocks. Through Sept. 24, the blue chip index is up 7% this year, but Nike ( NKE -0.17% ) and McDonald's ( MCD -0.55% ) are two of the three worst performers this year. Nike is down 44%, while McDonald's is off 22%.
IBM , the second-worst performer, is down 23%. Why Nike and McDonald's Have Tumbled This Year Though they compete in different industries, Nike and McDonald's have a lot of similarities as stocks. Both companies are generations old and represent two of the most successful, global American brands.
They're the leaders in their respective industries, footwear/apparel and fast food, and they're advertising juggernauts. However, while both stocks have been big winners over their histories, they face different challenges now. Nike has been struggling for years.
The stock peaked during the pandemic and is now down roughly 80% from its all-time high. The sneaker king struggled first with mismanagement under former CEO John Donahoe, who leaned aggressively into a digital-first strategy that abandoned key wholesale partners, allowing competitors to scoop up shelf space and market share, and underinvested in new products, overrelying on classic sales. Premium Feature Moneyball Superscore 54 /100 Today's Change ( -0.17 %) $ -0.06 Current Price $ 35.99 Elliott Hill replaced Donahoe as CEO two years ago, but the business has continued to struggle, plagued by headwinds from tariffs, a challenging market in China, and broader weakness in the footwear and apparel sector as peers like Lululemon , Deckers , and On Holding have also faltered.
McDonald's challenges are newer. The stock was at an all-time high as recently as earlier in this year, and it's fallen on a pair of underwhelming earnings reports, a trend of slowing growth, and recognition that it's losing market share to Burger King, which is fresh off its own turnaround with an improved Whopper and renovated stores. In the second quarter, Burger King reported 8.5% same-store sales growth in the U.S., compared to just 0.3% for McDonald's.
Image source: Getty Images. Which is the better buy for October? At its Investor Day conference yesterday, McDonald's announced a bold plan to invest $8.5 billion in its store base over the next 10 years to refresh its restaurants, become more efficient, gain market share in areas like chicken and beverages, and improve operating margins.
In its update, the company also said that U.S. comparable sales were expected to be slightly negative for the third quarter. Investors balked at the news, and the stock fell 5%. Still, the company is doing the right thing by responding to the challenge from Burger King, as investing to turn around the business is much better than accepting declining sales and hoping that a change in the macro environment or something else will return the company to growth.
Premium Feature Moneyball Superscore 58 /100 Today's Change ( -0.55 %) $ -1.30 Current Price $ 237.02 On the other hand, Nike's challenges seem more entrenched and exist across its sector. While the company has introduced its own turnaround strategy, Win Now, it's yet to yield significant results, as Nike's revenue growth is still flat. Management expects gross margin to begin to expand later this year as headwinds from tariffs roll off and efforts to streamline its inventory begin to pay off, but analysts still don't expect much of a recovery in earnings per share.
While Nike stock has plunged, its profits have too, meaning the stock hasn't gotten much cheaper as it's fallen. McDonald's, by comparison, remains solidly profitable and is now trading at a price-to-earnings ratio of just 19, the cheapest it's been since a brief dip during the pandemic. McDonald's has the better turnaround prospects and the better value.
It's the better stock to buy in October.
Source: The Motley Fool
