Every new investor goes through a few rituals in the market, but few are more painful than the first attempt to catch a falling knife. When a well-known stock is down 15%, 20%, or even 30%, it's tempting to see a 'discount' and try to pick up a quality company at a lower price. However, cheap stocks tend to be cheap when they fall, and the 'down' position you have opened simply bleeds money, hence the term falling knife. Today, we're going to look at three fundamental portfolios that have been crushed this year, and consider the merits of buying stocks at the bottom.
3 Major Stocks Down 15% From Previous Highs
If you want to take a stab (sorry) at a stock that's down 20%, you'll need to make sure the fundamentals and technicals are in your favor. And even if you're right, there's that principle to consider: the market can stay irrational longer than you can stay in meltdown. Here are three major stocks in the middle of the struggle; is it time to buy, or is there something worse to come?
International Business Machines: AI Shockwave Hits Profitable Consulting Division
International Business Machines Corp. NYSE: IBM he was seen as a close winner with AI as recently as six months ago when the stock hit an all-time high of $315. But while AI gives, AI can also take away. Anthropic Claude code has emerged as a potential tool for modern COBOL, which has long been a profitable arm of IBM's consulting division. A single post about Claude's take on the business sent IBM shares down 13%, their worst one-day performance since the Dot-Com bubble. Consulting revenue was a red flag in the Q1 2026 earnings report released on April 22, which showed growth of just 4% year-over-year (YOY).
Despite the flat Q2 guidance, other Q1 2026 numbers showed an otherwise healthy company. Revenue grew 9.5% to $15.92 billion, which easily beat estimates, and EPS of $1.91 was 16% higher than Q1 2025. The company also generated $2.2 billion in free cash flow in Q1, its highest number for the first quarter in a decade.
IBM's knife may have come down, but it continues to fall as sentiment overtakes fundamentals. Traders quickly rejected the stock's attempt to retrace its 50-day moving average, and the share price is back near its February low. The Relative Strength Index (RSI) also remains stuck below 50, where sellers are firmly in control. Until these technical trends reverse, it's hard to see meaningful momentum in IBM shares, even if the fundamentals are strong.
Booz Allen Hamilton: There Is No Visible Floor for This Falling Fire
It's been a tough 12 months for defense contractor Booz Allen Hamilton Holding Corp. NYSE: BAHwhich has lost more than 30% of its value and is facing a wave of wind. Financial statements for Q3 2026 released on Jan. 23 reported a 10% YoY profit decline, with public company sales down nearly 30% from fiscal Q3 2025. January was marred by bad news as the US Treasury canceled 31 contracts worth $21 million, citing inadequate data security. The dollar amount is very small, but losing the trust of your biggest client is a serious blow to future revenue.
Overall backlog remains strong, and the stock now trades at 11 times earnings and 0.75 times sales, but this suddenly cheap-looking valuation doesn't mean it's time to buy. The loss of government contracts is a major blow to the aerospace and defense industry, and technical support for BAH stock has evaporated. Recent analyst price targets have hovered around $85, suggesting a potential upside for the stock trading above $185 as recently as October 2024.
McDonald's: Macro Pressures on Low-Income Diners
McDonald's Corp. NYSE: MCD it hit an all-time high of $334 a day before the first bombs started falling on Iran, and the shock of the country sent the stock down nearly 20% in less than six weeks. The bottom line here is simple: high gas prices are too much of a burden for low-income consumers, and the low end of K has been a reliable source of foot traffic for McDonald's as dining dollars have been stretched. But now that low-income diners are being used even more, the company's traffic-focused growth efforts could see margin compression.
The Q1 2026 earnings report released on May 7 was positive, with revenue up 9% YOY and global comp sales up 3.8%. But management expects the Iran war to be a headwind for FX through most of 2026, while the U.S. stock market edge is forcing the company to seek operational changes. MCD is a defensive stock to start with, and is better equipped to survive a buyer's downturn than IBM or BAH. The company has raised dividends for 49 straight years, and the average price target of $335 implies about 20% upside from current levels.
Before you consider International Business Missions, you'll want to hear this.
MarketBeat tracks Wall Street's top and most effective research analysts and the stocks they recommend to their clients every day. MarketBeat identified five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on… and International Business Machines was not on the list.
Although International Business Machines currently has an Average Buy rating among analysts, top analysts believe these five stocks are the best.
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