With more than half the states in the U.S. considering some measures to slow down their re-opening efforts due to surging novel coronavirus cases, the markets are once again having to adjust to events. Although many might see this as an opportunity to buy blue-chip stocks, not all of these investments are practical right now.
Bear in mind, that we’re also coming up to the end of the second quarter, which means Wall Street is starting to adjust its estimates for the rest of the year.
There’s also the fact that sector rotation may well be a strategy traders start to implement; moving out of sectors that may be flagging and into new sectors where there’s still advantage. You saw the S&P 500 move its weightings into tech earlier this quarter and similar shifts on a broader basis may be in store before Q3 starts.
In times like these, many investors look to the big blue-chip stocks for safety and stability, at least through the storms. But this is an unusual time, and not all blue chips are safe harbors this time around.
That’s why it’s important to know the seven blue-chip stocks to avoid for now, none of which earned a “Buy” rating in the Portfolio Grader I use to find Growth Investor plays. They may rebound, but their safety isn’t a sure thing:
- Exxon Mobil (NYSE:XOM)
- General Electric (NYSE:GE)
- General Motors (NYSE:GM)
- Citigroup (NYSE:C)
- Boeing (NYSE:BA)
- Caterpillar (NYSE:CAT)
- HP (NYSE:HPQ)
Let’s dive deeper into what makes each of these blue chips less appealing now.
Blue-Chip Stocks to Avoid: Exxon Mobil (XOM)
The integrated energy major is usually a safe place to stick your cash in times of trouble. And XOM stock’s dividend is sitting at a juicy 7.8% right now.
That may seem like a very attractive deal, now that oil prices have stabilized in the upper 30’s. And Exxon has been working through much lower prices earlier in the year.
But this isn’t a normal time. A lower dollar has helped raise oil prices — the dollar and oil prices have an inverse relationship — since it now takes more dollars to buy a barrel of oil. That doesn’t mean oil has risen because of demand.
Furthermore, if there’s more Covid-19 trouble in the U.S. and abroad, XOM stock is going to be affected across its vast empire.
Also bear in mind that its 7.8% dividend pales in comparison to its 41% loss in the past 12 months, with plenty of downside risk still possible. All of his makes it one of the key blue-chip stocks to avoid now.
General Electric (GE)
This massive conglomerate is just a shadow of the company that dominated the 20th century. There are many factors involved in its long demise and there’s isn’t time to tell the complete tale of its unwinding.
But in the past 3.5 years, GE stock has been on a steady decline as corporate leadership has tried to selloff divisions and create a strategy to keep the company growing and relevant in the 21st century.
The current problem is, trying to do that during a global pandemic as well as a global recession isn’t easy. Once you cut all the corporate fat, you end up having to cut the muscle and bone. That’s about where GE finds itself now.
It has even cut its dividend to a mere 0.6%, so it’s not even a place to park cash. Plus GE stock is off another 37% in the past 12 months, with little hope of turning this ship around soon. The stocks I like are growing dividends and involved in incredible growth trends this year (and beyond).
General Motors (GM)
The auto market is a wild place these days.
For example, GM is one of the largest automakers in the world and sold about 17 million cars last year globally. It has a market cap of about $38 billion. Tesla (NASDAQ:TSLA) on the other hand, sold about 500,000 cars and has a market cap of $178 billion.
Now, how this niche electric vehicle maker has a market cap 4x larger than the biggest car maker in the world is a bit confounding. But, as the old saying goes, the market can be “wrong” much longer than you can capitalize.
Or more simply put. Don’t fight the tape.
This isn’t a reason to buy TSLA stock, but the fact is, GM stock is in trouble because it’s exposed to global recession and it’s having a tough time transitioning to alternative vehicles and finding a way to grow its margins.
And a second wave of Covid-19 means car sales will suffer longer than expected. Its 5.7% dividend isn’t worth holding when GM stock is off 34% in the past year.
Citigroup (C)
If there’s one banking stock among all the blue-chip stocks that represents the “too big to fail” class of financial institutions, it’s Citi.
This megabank has been around in one form or another since 1812, so it has financed the story of America. And more recently, the development in economies all around the world.
But its exposure to global markets as well as its size make it vulnerable to rapidly changing economic conditions. It’s difficult to turn this ship quickly, or in the right direction.
Another challenge is the weakness of the dollar and near-zero interest rates since that affects the bank’s ability to loan money at a decent margin. And if rates go negative, which some are talking about, it could be even worse for the megabank.
It delivers a 4% dividend at this point, but C stock is off 24% in the past 12 months, so that dividend doesn’t help your total return much. And if there’s more dollar weakness or economic troubles, there’s more downside left. This is all the more reason I like to stay way from the big banks and their “creative accounting” practices at Growth Investor.
Boeing (BA)
“If it ain’t Boeing, it ain’t going.” That was an old line pilots used after WWII, when it came to the aircraft they preferred to fly. And that was true for many decades in both the defense and aerospace side as well as the commercial side of the company.
But nowadays, Boeing is an entirely different company and its reputation has flipped. Now, it can’t get its signature commercial airliner back into production due to safety concerns.
It’s under investigation for trying to rig the bidding process on its part in the Artemis program with The National Aeronautics and Space Administration (NASA). Its cargo airplane for the military has been running into problems for years.
Now, “over budget and underperforming” is more the story line for BA stock. It has become a company that Congress has grown increasingly frustrated with and the commercial industry has moved away from.
Now the global pandemic has slammed air travel, which means global demand for new fleets has been decimated. And its suppliers are now withering.
This is not the time to have challenges on top of the challenges that currently exist.
Its 4.6% dividend doesn’t protect you from BA stock’s 51% slide in the past 12 months. And given the resurgence of Covid-19, things could get worse before they get better. That makes Boeing stand out as one of the blue-chip stocks you should avoid today.
Caterpillar (CAT)
The last good year this global construction and mining equipment maker had was 2018. Since then, CAT stock has slowly been drifting downwards.
Some of this has to do with the Chinese trade war and the global economic slowdown that ensued.
Caterpillar does well when the world is growing. When things stall or contract, it’s one of the first industries hit, since it supplies heavy equipment to nations as well as industry to build, maintain and upgrade infrastructure and properties.
Increasing trade tensions with China may mean CAT stock gets caught in middle of the two superpowers. And the Covid-19 lockdowns have chilled growth up to now. At least, for those outside the major megatrends of our time.
CAT stock has fared reasonably well so far, only off 10% in the past year. And it pays a 3.4% dividend, so that cuts the overall loss to single digits. But there are some significant threats on the horizon, and that doesn’t make this a safe port in any new storm.
HP (HPQ)
HP was the original garage-based tech startup. It became one of the leading tech firms as the digital revolution began and ultimately turned into one of the most recognizable blue-chip stocks today.
But with that growth came a lack of focus, as the company grabbed at a lot of opportunities and then had to find a way to make them all work.
Its PCs were the industry standard, but rising competition from Apple (NASDAQ:AAPL) and other PC makers ate into its dominance, and its margins.
In the past decade it even split off its enterprise division to focus on PCs again, but the market is in a different place than it was back in the old days.
And these days it has been reduced to a potential takeover target. Xerox (NYSE:XRX), another company trying to regain a piece of its old self, offered a near-$30 billion takeover bid for HPQ at the end of 2019.
Fortunately, HP backed out of the deal in late March, just as the pandemic locked down America.
HPQ stock is off 22% in the past 12 months and provides a 4.3% dividend. But this stock isn’t a play on regaining its greatness, it’s more a way to play a takeover. The question is, whether it goes at a premium or as a bargain.
At the end of the day, wishing and hoping that a company will be acquired by a stronger business is no recipe for long-term gains. Only sales and earnings growth can do that. Which brings me to one of my top investment themes for 2020 and beyond.
The 5G Buildout Is an Incredible Opportunity
Within two years, most cell phones will be 5G enabled and be able to wirelessly handle television streaming. With 5G, we’ll have cable modem speeds on any device; no need to plug in. That’s a big deal for rural areas … the very same areas that are also key to President Donald Trump’s reelection. So, by pushing 5G over the goal line, Trump will deliver a big win for his base — and strike a blow against Chinese rivals like Huawei Technologies.
But in the big picture, 5G is about much more than trade wars and faster downloads. Because 5G is 100 times faster than 4G, it’ll allow your wireless internet devices to work in real time. That advancement is a game changer for tech companies.
With the 5G infrastructure market set to grow at an annual rate of 67% over the next 10 years, the entire market will go from $780 million to nearly $48 billion. This buildout is where I see opportunity with 5G stocks now.
Cable companies can do their best to fight back with fiber optics … but they can’t compete with the convenience of a smartphone, once it has ultra-fast 5G. That’s how my 5G infrastructure play will capture more market share from the broadband cable companies.
The stock I’m targeting is enjoying an influx of big money on Wall Street, and it has good fundamentals, too — making it a “Strong Buy” in my Portfolio Grader system now.
When you do, you’ll see how to claim a free copy of my investment report, The King of 5G “Turbo Button” Technology, which has full details on this company — and what makes it such a great buy now.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.