Most of the time, blue-chip stocks are solid buys. Though they’re not always high-flying, sizzling growth names, they’ve usually got enough history and enough stability to qualify them as names you can buy and forget about for a few years.
Not all of the market’s most recognized, long-lived names are always great investments, however. Sometimes, even the most compelling large company sees its stock race to wild valuations. Other times, even an iconic outfit can slip into trouble that’s unbecoming of a blue chip. It’s rare that such stumbles turn into company-killers, to be fair, though it’s not unheard of either.
With that as the backdrop, here’s a rundown of the market’s most troubled blue-chip stocks that are not only not buy-worthy, but large companies that could end up doing damage to investors that insist on owning them.
In other words, though they’re blue chips, they’re still stocks to sell rather than buy … particularly when there are so many other high-quality stocks to step into.
General Electric (GE)
There’s no reason not to kick off this list of blue-chip stocks to sell with a look at the market’s most recent high-profile fall from grace. General Electric (NYSE:GE), once an icon of American industrialism, has become un-ownable.
That’s at least according to JPMorgan Chase analyst Stephen Tusa, who recently lowered his price target on GE stock to $6 — versus its current price near $8 — explaining “While the stock is down ~70% from the peak of $30, this move still does not sufficiently reflect the fundamental facts, in our view.”
Though the company can be salvaged, it has been piling up more and more surprising problems of late, leaving investors terrified of “what’s next?”
Illinois Tool Works (ITW)
Illinois Tool Works (NYSE:ITW) has no glaring problems right now. Yet, there’s a reason the number of major hedge funds that own ITW stock has been pared down from 38 to 28 over the course of the past four quarters.
Exactly what that reason is, or reasons are, isn’t perfectly clear. Ultimately though, it has probably got something to do with the company’s tepid sales growth despite a roaring economy, as well as a relatively frothy valuation.
The top line is only on pace to grow 3.4% this year, and analysts are only looking for sales growth of 1.9% in 2019. Earnings are growing a bit faster, but all in all it’s just not enough.
Procter & Gamble (PG)
Credit has to be given where it’s due. Relatively new Procter & Gamble (NYSE:PG) CEO David Taylor has pointed the company back in the right direction. Last quarter’s sales growth was the best growth the company had logged in years, and more of the same is in the cards.
PG stock has responded well to the turnaround as well, up 30% from its May low.
It’s an impressive run, but may also be about as good as it gets for a while. The current price near $71 not only aligns with last year’s peak levels, it also leaves P&G’s trailing P/E ratio of 24.5 near the highest level it’s been in years.
CME Group (CME)
Investors will know CME Group (NASDAQ:CME) better as what used to be known as the Chicago Mercantile Exchange; the moniker was amended mostly because the exchange floors under its umbrella trade a great number of financial instruments.
And, the trading business is good. The company announced earlier this month that the 20.6 million contracts it transacted per day, on average, last month was up 38% on a year-over-year basis.
CME stock may be about as fully valued as it’s going to get for a while, however. Although the stock’s been in rally mode since early 2016, it’s also just hit analysts’ consensus price target of $188. Valued at 26 times next year’s projected per-share profit, the pros weren’t willing to up their target any more. Usually, they would have already done so by now.
Don’t misread the message. Facebook (NASDAQ:FB) is still the king of social networking, and it’s not going anywhere.
On the other hand, the Facebook we’re likely to see a year from now isn’t nearly as impressive as the one we knew and loved a year ago. The company warned the market two quarterly reports ago that its growth pace would weaken at “high single-digit percentages” going forward, and last quarter’s report essentially validated that concern. Moreover, investors are taking the red flags to heart. FB stock has fallen 34% from its July high, and remains — for the time being anyway — trapped in a strong downtrend.
Activision Blizzard (ATVI)
Down 35% since their early October peak, shares of video game publisher Activision Blizzard (NASDAQ:ATVI) look tantalizing. This is, after all, one of the most prolific and storied names in the business.
The prompt for the pullback, however, may be much bigger in scope than most investors realize. The latter part of the selloff was spurred by a tepid Q4 outlook, and the early part was prompted by lackluster sales of its newest entry into the Call of Duty franchise (Call of Duty: Black Ops 4).
In a bigger-picture sense though, both may be mere clues that the company has lost its touch when it comes to developing new titles.
Gilead Sciences (GILD)
Gilead Sciences (NASDAQ:GILD) is still one of the biggest names in HIV and hepatitis treatments. But, in some ways it’s become a victim of its own success. After demonstrating the kinds of cash cows those diseases could become, competitors were inspired to enter the fray. Hepatitis C drug Mavyret, from AbbVie (NYSE:ABBV), and HIV treatment Tivicay/Triumeq from GlaxoSmithKline (NYSE:GSK), for example, both ate into Gilead’s market share earlier this year.
End result? In September, the company announced it would begin selling not cheaper versions of other companies’ drugs, but cheaper generic versions of its own hep-C drugs. It could take a while for investors to adjust to the new paradigm, which is considerably less thrilling than the old one was.
Some credit has to be given. Considering how late Oracle (NYSE:ORCL) was to the cloud-computing party, it has made some respectable inroads to the business. It had to. The cloud is the future. It has a tenuous, tentative hold on its small sliver of the cloud computing market, and not everyone believes the company will be able to hold on in a meaningful way.
Futurum Research’s Daniel Newman is one of those doubters. He recently penned “For now, I’m calling Oracle a Cloud Pretender. Microsoft, AWS and Google have pulled away, and given the lack of leadership and product differentiation, I don’t see how Oracle is going to catch up.”
Another reason ORCL may top a list of stocks to sell: The buzz is, Amazon.com (NASDAQ:AMZN) is about to discontinue its own use of Oracle’s platform.
Philip Morris (PM)
Despite the traction that the smoking-cessation movement has been able to achieve, cigarette company Philip Morris (NYSE:PM) continues to find ways to win. Sales and earnings are projected to grow this year, and grow again next year.
It’s not red hot growth, to be clear. Revenue growth isn’t expected to exceed 3% in 2018 or 2019. Nevertheless, it sure beats the backpedaling many of these companies are facing.
Still, this is a company facing a time limit and a headwind that will never stop blowing. If healthier mindsets don’t turn into an insurmountable problem, tougher regulations like a planned ban on menthol cigarettes and tighter regulations on e-cigarettes will.
Lowe’s Companies (LOW)
Last but not least, add Lowe’s Companies (NYSE:LOW) to your list of blue-chip stocks to sell sooner rather than later.
There’s nothing inherently disastrous about the company. Sales growth of 4.3% this year is driving a 17% increase on per-share profits, and next year’s outlook calls for more of the same kind of forward progress. The next few quarters, if not years, could prove relatively disappointing though. Sales of new homes are slowing down, off by 5.5% in September. And, though spending on the refurbishment of existing homes had been able to offset a slowdown on the construction front, the most recent look at the Leading Indicator of Remodeling Activity (LIRA) suggests consumers are even dialing back how much they plan to spend on remodeling through the end of 2019.
Chris Herbert, Managing Director of Harvard’s Joint Center for Housing Studies, explains “Rising mortgage interest rates and flat home sales activity around much of the country are expected to pinch otherwise very strong growth in homeowner remodeling spending moving forward. Low for-sale inventories are presenting a headwind because home sales tend to spur investments in remodeling and repair both before a sale and in the years following.”
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.