When the economy is in recovery and the markets keep piling on the gains, it seems a bit rude to talk about the bad stocks out there. But this is precisely when you have to stay disciplined and look at the stocks you have that may not be performing up to scratch. Because now is the time when you see them flatlining and think that this rising market will help them out.
And some of the stocks below get pretty decent Portfolio Grade quant scores — meaning they’re getting bought because they’re in a hot sector and most of the good companies are already fully valued. These are the stocks people are buying thinking they’re still bargains, when they’re actually cheap for a reason.
That’s why I grade companies based on more than their momentum. I also look at their fundamentals and earnings growth, because when they’re bad, there’s not point in hanging on, hoping for the best.
These 7 weak blue-chips stocks to sell are the tip of the iceberg, but they’re a good start for your spring cleaning.
Blue-Chip Stocks to Sell: Kraft Heinz (KHC)
Source: Mike Mozart via Flickr
Kraft Heinz (NYSE:KHC) used to be one of the classic consumer brand companies, as steady as you could want for a consumer staples stock. And the merger between two iconic consumer staples companies was supposed to make it even bigger and better.
That size was meant to allow it to do battle with larger consumer staples firms as well as crush its niche foes. The merger in 2015 was supposed to set up a juggernaut.
KHC stock is down 46% in the past year and 25% year to date. And that year-to-date figure is crucial, since most blue-chip stocks have been chugging along this year.
Its earnings report in February was the big blow. KHC had some weak quarters, but its Q4 was when the reality set in that KHC’s flagship brands were tired and consumers were transitioning out of their core products.
And while the industry is down about 6% in the past six months, KHC is off more than 40%. All its globally familiar brands are now looking less comforting to younger generations of consumers. That means even its solid nearly 5% dividend isn’t worth the time it will take to turn things around.
Noble Energy (NBL)
Noble Energy (NYSE:NBL) is an upstream oil and natural gas company with operations around the world, both onshore and offshore.
An upstream energy company means it is an exploration and production (E&P) firm that looks for oil and gas, drills for it and ships it to market. This is the most volatile piece of the industry, since there are plenty of risks in the exploration end and there are also risks wrapped around energy prices.
Right now, it would seem that this is a great time to be in the energy business. The economy is strong, oil and gas prices are both high, and demand moving forward is strong.
In the past three months, NBL is up an impressive 37%. However, for the year, it’s off 17%. And, there are signs that the U.S. economy is slowing down and this is the last hurrah for now.
Asia is slow, Europe is slow and emerging markets aren’t going gangbusters. Eventually, that weakness will end up here. And E&Ps will feel it first. This is also one time where having assets around the world isn’t an advantage.
Allstate (NYSE:ALL) is another stock in a strong industry that was doing well when interest rates were rising, but has lost that momentum.
You see, insurers have to keep a big chunk of the money they collect in premiums in cash or near cash equivalents so they can pay out claims. That means they keep a big chunk in U.S. Treasuries. When rates are rising, insurers are making more money on all that cash. That’s not happening now.
Also, real estate insurance makes a fair amount of its insurance portfolio and the recent floods in the Midwest will certainly take a bite out of earnings.
This is not a stock that is falling off a cliff. It’s just in a tough patch, and its 2.1% dividend and flatline growth for the past year doesn’t bode well for coming quarters when you add in the other factors mentioned here. There are better places for your money.
Source: Everjean via Flickr
Allergan (NYSE:AGN) is a good-sized biotech ($48 billion market cap) that is best known for its botox treatment for cosmetic rejuvenation. But it also has a stable of two dozen other treatments for everything from bipolar disorder to irritable bowel syndrome to replenishing eyelashes.
One of its most interesting investment is in a new, non-surgical fat reduction treatment that AGN sells to spas and cosmetic surgery clinics. The name brand is Cool Sculpting and works by freezing fat cells that then are metabolized by your body.
This is the new hot thing, and pricing is usually in the low four digits for most packages. The fact that it can be done quickly and relatively painlessly is a big plus.
The thing is, there’s no real focus to AGN’s portfolio. And given some of its stronger brands and mixed earnings, it would make sense to better focus the company and sell off its more derivative products.
And an activist investor is starting to push for just that. This hasn’t helped the price of the stock — AGN is down 12% in the past year. And this is as the broader biotech market is doing well. Even AGN has seen some short-term interest, but the major brokerages are not impressed.
Dollar Tree (DLTR)
Dollar Tree (NASDAQ:DLTR) is a discount variety store that generally has its 14,000-plus stores situated in small towns and rural areas around the U.S.
In 2015 it closed the purchase of competitor Family Dollar and has been integrating that purchase ever since. That hasn’t helped investors very much since there are a fair amount of markets where the Family Dollars are still competing with Dollar Tree stores. Or, there are more of both stores in particular markets than there need to be.
Some of that has started to change now. DLTR has announced its speeding up the conversion of the Family Dollar stores and getting on with its new strategy. That has helped the stock recently.
But that integration needs to happen and as the economy improves, it may spell less business coming in the door for DLTR. Weaker earnings will not go down well in the markets, nor will guiding lower for the next quarter or year.
CenturyLink (NYSE:CTL) is a telecom that is stuck in a very difficult spot, and there’s little it can do about it. And that’s why it has an 8.3% dividend, and it’s off 26% in the past year.
As the big telecoms transitioned out of the wireline business and into the more lucrative wireless sector, CTL kept plugging along in smaller cities, towns and rural America.
As the big telecoms transitioned to high speed cable and fiber optics because their more densely populated customer base could subsidize expansion into more rural areas, CTL didn’t have that advantage.
It’s expensive to run new state-of-the-art lines into sparsely populated areas, and the payoff isn’t big enough to warrant it many times. So you have a captive, unhappy base and those who have left.
And that’s about where it stands. Sure, it has a great dividend, but even with that dividend, investors still lost 19% last year.
What’s more, the big telecoms aren’t interested in the business, so a buyout isn’t even a hope at this point.
Lowe’s (NYSE:LOW) is the other big-box home improvement store.
LOW is one of those stocks that is hot right now, so it’s certainly a momentum play in the housing sector. Low interest rates a moving buyers into the housing market and that means existing homeowners that are looking to make a move are likely gearing up their homes for sale in coming weeks or months.
And this is the big season for home improvement companies as the warmer weather gets more people outside to spruce up around the house and yard.
While this all sounds exciting, the fact is, LOW is trading at a trailing PE of nearly 40. That’s a lot of optimism priced in already. And it is going to have to sustain some impressive numbers to keep that up, or growing.
There’s also the fact that as much good news as there is in the US economy, there are also real signs that a slowdown is upon us. That will certainly keep interest rates low, but it may impact hiring – or layoffs – and wages. And the stock has plenty of upside built into it now, so any cooling off is going to be magnified.
This isn’t the time to be jumping on this train, or letting it take you for a ride.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
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