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Market Update

The Best- and Worst-Performing Stocks: Q3 2022

Solar stocks shine, and retail remains buoyant. Chinese tech names and European healthcare get battered.

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The stock market remained treacherous through the third quarter of 2022, although one group did particularly well thanks to some help from government legislation: solar stocks. Retailers too, fared well, as consumer spending remained healthier than investors had expected.

Elsewhere, however, it was a bumpy road for stock investors as the market continued to be buffeted by rising interest rates and deepening worries about recession. With stocks erasing gains posted in the first half of the quarter, every sector except for consumer cyclical and energy was down at the end of the quarter.  

The worst-performing sector was communications services, with the Morningstar US Communication Services Index down nearly 12.7% in the third quarter. Dragging the sector lower were losses in index heavyweights Alphabet (GOOGL) (GOOG), Meta Platforms (META), and Verizon Communications (VZ), which fell 12.00%, 15.86%, and 24.24%, respectively.

Real estate was the second-worst-performing sector, where rising interest rates and concerns about slowing economic growth sent the Morningstar US Real Estate Index falling 10.7%. Leading detractors to the sector's performance were American Tower (AMT), which slid 16%, and Prologis (PLD), which was down 13.08%.

Consumer cyclical stocks rose 3.21% despite the group's sensitivity to the economy's ups and downs. The Morningstar Consumer Cyclical Index got a boost from Tesla (TSLA), which rose 18.17% and is the second-largest stock in the index behind Amazon.com (AMZN). In addition, Amazon was up 6.4% for the quarter. On a year-to-date basis, Tesla and Amazon finished the quarter down 24.70% and 32.22%, respectively.

Gains in ConocoPhillips (COP), up 16% for the quarter, and Marathon Petroleum (MPC), up 21.55%, helped lift the energy by 3.12%.

Overall, stocks in Morningstar's coverage performed better in the third quarter than they did in the second quarter. Of the 852 U.S.-listed stocks covered by Morningstar analysts, 258 stocks rose, with 46 increasing by 20% or more. That is more than the 110 that were up in the second quarter, when only eight stocks rose by 20% or more.

Reflecting the more muted declines in the broad market, declines on individual stocks were also less drastic. While 593 closed the quarter lower, that is fewer than the 758 that fell during 2022's second quarter. Furthermore, only 110 stocks fell by 20% or more, less than half the 301 stocks that fell that much in the previous quarter.

Which Stocks Performed the Best in the Third Quarter?

A table showing the third quarter's 10 top-performing U.S.-listed stocks covered by Morningstar analysts.

Driving the top performers among stocks covered by Morningstar analysts were names set to benefit from the Inflation Reduction Act that was signed into law by President Joe Biden in mid-August. The biggest winners were solar stocks. "The act includes a bevy of clean energy incentives," says Morningstar equity analyst Brett Castelli.

Solar panel manufacturer First Solar (FSLR) was the top performer, while Stem (STEM), SunPower (SPWR), and Enphase Energy (ENPH) also ranked in the top 10.

Shares of oilfield servicer Weatherford International (WFRD) rose 52.53% in the third quarter and ranked fourth among the top-performing U.S.-listed stocks covered by Morningstar analysts. Investors cheered strong results that showed the firm's revenue increasing 13% during its second quarter.

Other stocks with large gains included Dick's Sporting Goods (DKS), which impressed investors after it not only beat both FactSet earnings per share and revenue estimates for the second quarter but also increased its same-store sales growth range to negative 2% to negative 6% from negative 2% to negative 8%.

"Although sales are negative versus last year, they remain far above [more than 30%] prepandemic levels, which we attribute to strong demand for activewear and improved merchandise," says Morningstar equity analyst David Swartz. Online retailer Poshmark (POSH) also soared during the quarter.

Alnylam Pharmaceuticals (ALNY) rallied 37.24% after the firm announced positive news from its phase 3 study of its patisiran drug, which can treat nerve disease caused by certain genetic disorders.

A table showing the long-term returns for the third quarter's 10 top-performing U.S.-listed stocks covered by Morningstar analysts.

Which Stocks Performed the Worst in the Third Quarter?

Stocks facing the worst losses on Morningstar's coverage list in the third quarter were primarily those based in foreign countries.

A table showing the third quarter's 10 worst-performing U.S.-listed stocks covered by Morningstar analysts.

I-Mab (IMAB), a China-based biotech firm, was the worst performer on Morningstar's U.S.-listed stock coverage list. Shares slid 64.51% in the third quarter after news that Chicago-based biotech firm AbbVie (ABBV) backed out of a trial for lemzoparlimab, which was part of a joint venture to develop a treatment for two types of cancer.

Shares of Chinese electric vehicle maker XPeng (XPEV) fell after the company posted a softer-than-expected vehicle delivery outlook for the third quarter, says Morningstar equity analyst Vincent Sun. Similarly, Shares of Chinese data center operator GDS Holdings (GDS) slid after the firm reduced its revenue guidance to 2% lower for its fiscal 2022 because of impacts from China's macroeconomic conditions and lockdowns, says Morningstar senior equity analyst Dan Baker.

Shares of plasma derivative producer Grifols (GRFS) slid 48.15% as concerns over the firm's ability to recover from coronavirus headwinds, inflation, and high financial leverage had damped investors' sentiment toward the company's position, says Morningstar healthcare strategist Karen Andersen.

American-German dialysis company Fresenius Medical Care (FMS) was the sixth-worst performer during the third quarter. The company's profitability was battered by factors such as labor inflation and operating inefficiencies, causing the firm to cut its 2022 profit outlook to a high-teens decline from a low- to mid-single-digit percentage increase, according to Julie Utterback, Morningstar senior equity analyst. Investors subsequently sold off on the stock, leading to a 43.70% decline during the third quarter.

A table showing long-term returns for the third quarter's 10 worst-performing U.S.-listed stocks covered by Morningstar analysts.

Jakir Hossain has a position in the following securities mentioned above: GOOG. Find out about Morningstar’s editorial policies.