While the 30 companies listed under the venerable Dow Jones Industrial Average, not all securities can succeed at the same time, necessitating an uncomfortable discussion about which Dow stocks to sell. Given the rough year we’ve had along with a questionable macroeconomic backdrop for next year, investors may want to jettison some problematic market ideas.
To be clear, picking out Dow stocks to sell natively generates controversy because each enterprise had to work hard to receive the honor. It’s like the World Cup: if you’re in, you’re among the elites of the planet. That said, some teams will perform better than others.
For this list, I’ve recruited the services of Gurufocus.com, presenting ideas that the investment resource considers relatively overvalued. As well, some inquiries may be had about the targeted companies’ fiscal resilience and/or fundamental relevance. If you’re not put off by the concept entirely, here are Dow stocks to sell.
| BA | Boeing | $176.50 |
| CRM | Salesforce | $130.48 |
| DIS | Disney | $92.15 |
| IBM | International Business Machines | $147.27 |
| UNH | UnitedHealth | $542.91 |
| NKE | Nike | $108.33 |
| V | Visa | $207.81 |
Boeing (BA)
If you’ve been following the news for the last few years, the inclusion of aerospace giant Boeing (NYSE:BA) among the Dow stocks to sell probably comes as no surprise. Fundamentally, the enterprise brings arguably the most questions to the table. Without beating an expired horse, Boeing continues to suffer headwinds from safety issues related to its 737 Max jetliner.
Naturally, the obstacles translated to some of the worst financial profiles among Dow stocks to sell. At the time of writing, the market prices BA stock at 56 times forward earnings. In contrast, the sector median value is only 19.5 times. Stated differently, BA shares overvaluation is worse than 96% of the aerospace and defense industry.
On average, its gross margin sits 1.4% below parity, presenting challenges regarding economies of scale. Not only that, but its operating and net margins also dropped into negative territory. Combined with a distressed balance sheet, Boeing is best left for hardened speculators.
Salesforce (CRM)
Once a blisteringly strong inclusion in the Dow 30, the market paradigm shift this year might make Salesforce (NYSE:CRM) one of the Dow stocks to sell. On a year-to-date basis, CRM slipped nearly 48%, drawing concerns even among gamblers. With the broader technology space disproportionately suffering from the Federal Reserve’s commitment to rising interest rates, Salesforce cuts a worrying profile.
Moreover, macroeconomic headwinds forced management to make headcount cuts to its sales team. In particular, it wasn’t a great look because earlier, Salesforce nearly tripled its workforce in the past five years. As well, the specter of wider cuts exists should an aggressively hawkish Fed cause the economy to fall into recession.
Financially, CRM appears overpriced relative to traditional valuation metrics. Currently, its price-earnings ratio stands at 476 times. On a less-glaring note, its forward PE is 23.7 times, which sits almost right on the nose with the sector median value.
Disney (DIS)
Just for full transparency, I made a speculative bullish case before about Disney (NYSE:DIS). Earlier in the new normal, the extended months of lockdowns and mitigation measures sparked the revenge travel phenomenon. However, as consumers scratched the underlying social experience itch, they started to run low on discretionary funds.
While I don’t want to overstate the narrative, it’s possible that entertainment consumption is finally returning home. With a global recession perhaps on the horizon, now’s not a great time to go on exotic vacations. Still, people want escapism, especially during hard times. Therefore, Disney’s cheap entertainment offerings such as its Disney+ streaming service could see increased demand.
Here’s the rub, though: it’s a risky proposition against traditional valuation metrics. Currently, the market prices DIS at 53.7-times trailing earnings and 22.3-times forward earnings. Both represent terrible stats, ranking worse than at least 74% of the competition. Thus, conservative investors might consider Disney to be one of the Dow stocks to sell.
IBM (IBM)
Running through Gurufocus.com’s screener for Dow stocks to sell, IBM (NYSE:IBM) is the one that hurts. In my view, I believe Big Blue offers much for investors willing to ride some choppy waters. Conspicuously, IBM returned over 8% of equity value since the beginning of the year. That’s a far better performance than most other tech firms. For instance, the Nasdaq Composite index slipped 30.4% YTD.
In addition, IBM provides a generous source of passive income with a forward yield of 4.47%. As well, the company enjoys 28 years of consecutive dividend increases. It’s a status that management will not want to give up. So, why consider it one of the Dow stocks to sell?
Again, I don’t. Still, looking at the matter objectively, IBM may be overvalued. For instance, the market prices shares at 6.6-times book value, ranking worse than 83% of its peers. Also, the company’s balance sheet leaves much to be desired. For example, its cash-to-debt ratio is only 0.18 times, worse than almost 90% of the underlying industry.
UnitedHealth (UNH)
For book smart investors, UnitedHealth Group (NYSE:UNH) may come off as an ideal play under present circumstances. That’s because in general, the relationship between insurance stocks and interest rates is linear: as one metric moves up, so too does the other. Sure enough, UNH gained over 7% for the year so far. In contrast, the Dow Jones index slipped more than 8% during the same period.
Nevertheless, an argument exists that UNH may be carrying too rich a premium. While Gurufocus.com labels UNH as fairly valued based on its proprietary calculations, the market prices shares at 26.4-times trailing earnings and 21.6-times forward earnings. Both stats are awful, each ranking worse than at least 92% of the competition.
Another factor to consider is that UNH is priced at 6.8-times book value, far exceeding the sector median’s 1.9 times. As well, UNH’s price-to-free-cash-flow ratio is 16.4 times, worse than nearly 87% of the industry. Therefore, if your priority centers on discounted opportunities, then UNH ranks among the Dow stocks to sell.
Nike (NKE)
Technically speaking, Nike (NYSE:NKE) presents an intriguing case that doesn’t quite comprehensively fit the narrative of Dow stocks to sell. True, since the January opener, NKE gave up more than 34% of its equity value. At the same time, in the trailing month, shares gained over 15%, possibly indicating a recovery move.
Nevertheless, fundamental concerns abound for the sports apparel and footwear icon. For one thing, consumer sentiment trends near all-time recorded lows. Frankly, macro pressures will do nothing to mitigate this concern. Also, the personal saving rate cratered since skyrocketing to blistering heights during the early days of the pandemic. Put another way, people may have less discretionary funds lying around, making NKE a potential candidate for Dow stocks to sell.
Against financial metrics, NKE appears overpriced. While Gurufocus.com’s proprietary calculations for fair market value disagree, investors should realize that Wall Street prices Nike shares at 36.7 times forward earnings. This stat ranks worse than 97% of the company’s peers. At the very least, one should be careful with NKE.
Visa (V)
Perhaps the most perplexing market idea on this list of possible Dow stocks to sell, Visa (NYSE:V) presents both a bullish and bearish argument. On the positive front, the financial services firm may enjoy upside relevance as a credit card company. Basically, Visa allows households to stretch their budgets, which might come in handy during these rough economic waters.
Still, I’m not entirely sure how sustainable this argument stands. Throughout this year, we’ve seen companies – particularly tech firms – announce significant layoffs. The more high-paying white-collar jobs get the axe, the less likely debtholders will pay back their obligations. Therefore, the broader narrative for Visa may depend on some semblance of economic viability.
Even in the financial department, Visa presents a tricky framework. While the company enjoys a solid balance sheet, decent sales growth, and excellent profit margins, it’s also hampered by valuation concerns. Particularly, the market prices Visa at 25.3 times forward earnings, worse than nearly 93% of the underlying industry.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.