The doom and gloom of a few days ago in the U.S. stock market has been bolstered by stability and optimism.
Still, the market is pretty much back where it started from — both on the week and the calendar year.
But don’t be fooled into thinking that this rollercoaster ride for the S&P 500 Index
is mirrored by the action in every stock. There are a number of picks that have big potential to break out even in this choppy market — as evidenced by Netflix
after a blowout earnings report recently.
And, of course, there are plenty of dead-money picks that are falling equally fast.
That means it’s important to take a hard look at your portfolio in 2018, instead of settling for subpar stocks and blaming your underperformance on that bogeyman of “volatility.”
I’ve highlighted some picks lately to consider as buying opportunities, including five stocks that look promising this earnings season and a group of fast-growth tech stocks that could give the FAANGs a run for their money. But the first step is to toss out chronic laggards, and free up some cash to invest in more dynamic names.
To help with that spring cleaning, here are five widely held blue-chip stocks that have seen better days.
One stock whose struggles were on painful display this week is IBM
On Tuesday, Big Blue gave an earnings report that pretty much sums up everything about this troubled tech stock. Sure, IBM technically beat forecasts, but it did so because of a big one-time tax bump and the short-term pop of a new mainframe product that is unlikely to have much punch in the future.
Investors saw through the results, and the shares are down about 10% since the report was released.
Fundamentally, long-term success at IBM depends on so-called “strategic imperatives” that include cloud computing, cybersecurity and the vaunted Watson artificial-intelligence engine. However, the details are still light on just how much punch AI is providing to the bottom line, and how much investors can depend on this growth engine.
Hope springs eternal, but IBM hasn’t done a great job of delivering on its much-talked about “reinvention.” It has sold off dozens of pieces, from semiconductors to customer care, but margins haven’t really benefited. Worse, it has suffered chronic revenue pressure for years as its other bets have failed to replace the decline of legacy businesses.
There’s a reason this stock is down over 25% from its 2012 high, and has been dead money for years. If you’re still hanging on to IBM, roll up your sleeves and take out the trash already.
You may think Home Depot
is a wise bet, with a strong history of outperformance in generation and a robust housing market in 2018 that is just entering the spring buying season. But the long-term uptrend of HD stock seems to be hitting a big snag lately.
Just look at the stock’s 15% slide from its January highs as proof.
As the company rounds on its first-quarter earnings report in a few weeks, investors may want to pay attention to this recent erosion of sentiment. Sure, Home Depot earnings were strong in January, featuring a beat on both the top and the bottom line, but performance since then seems to indicate investors have been getting out while the getting is good.
That’s in part because a big runup over the past few years has set the bar perhaps unrealistically high; even after recent declines, HD stock is still up over 56% in the past three years vs. 28% for the S&P 500.
It’s also because last quarter’s earnings hinted at trouble to come with weaker margins and forward revenue projections that fell short of Wall Street expectations.
While it’s all well and good to point to a generous history of dividend growth and buybacks, investors need to be realistic about the state of Home Depot stock. There are plenty of picks that have a decent yield that aren’t stuck in a downtrend, and aren’t exposed to the specific pressures of specialty retail.
Procter & Gamble
Though some people consider consumer products giant Procter & Gamble
a stock that’s fit to be held forever, it’s important to recognize the opportunity cost of any investment. Sure, P&G may not go bankrupt and hasn’t exactly fallen dramatically as some of the other blue chips on this list. But why own it, and not any of a dozen other companies instead?
Once again, P&G earnings this week showed anemic sales trends, owing to a lack of growth opportunities for its legacy brands like Pampers diapers and pressure on margins as competitors like Harry’s and Dollar Shave Club undercut its Gillette shaving products.
When shoppers can opt for premium brands they prefer or go down-market with private-label products or instant online delivery of cheaper alternatives, it’s a tough environment for P&G all around.
This is the latest news, but it’s hardly a new story. After all, perpetually flat sales were the reason activist investor Nelson Peltz waged a bitter proxy fight last year. And though Peltz finally was awarded a seat March 1, the future doesn’t exactly look bright.
If you want to hang on blindly just because this company is 180 years old and pays a dividend, be my guest. But P&G is hardly the only stagnant income investment on Wall Street, and your portfolio has plenty of other options.
is looking better lately than it has been. After a bunch of missteps in the past few years, the retailer finally set a new 52-week high in January. However, just because TGT is at the top of its trading range doesn’t mean it has more headroom. And it certainly doesn’t mean things can sour once more for this stock.
In fact, January seemed to be a classic case of “sell the news” as great press over the retailer’s strong holiday sales were quickly followed by a top in share prices; shares are down about 9% since those early 2018 highs.
And why not? Wall Street is projecting Target sales to be roughly flat this year and to grow 2% in 2019, if it’s lucky.
Let’s not forget Amazon
either, and the threat it poses. Target just shelled out $550 million for Shipt, a same-day delivery service, with goals to roll out the platform across half of its stores in 2018 in a bid to go toe-to-toe with Amazon. But Target suffered huge woes in 2015 with a ship-from-store platform that caused no small number of headaches thanks to inaccurate inventory tallies and other logistical problems. After all, same-day shipping is much easier said than done, particularly when you’ve atomized your inventory across stores instead of a centralized fulfillment center.
It just goes to show how hard it is for a retailer like Target, because even when they make the right decision for a digital age, they can still get it wrong.
What’s a hot, brown mess that has investors wrinkling their noses? Hershey Co.
This company has struggled since 2014 to break out of a rut. And while management could blame high cocoa prices a few years ago, it has become increasingly apparent that the problems are structural for this company.
Shares are down about 17% since the end of 2017, which certainly doesn’t bode well as the company is getting ready to report earnings at the end of April. Worse, a UBS analyst downgraded the stock to “sell” and Piper Jaffray initiated coverage at “neutral” with a $99 price target that is only a hair above the stock’s current valuation.
The company is still very much reliant on chocolate — the category represents more than 70% of total sales — and just as other companies like Coca-Cola
have struggled to find growth in a brand that is synonymous with junk food, Hershey is also feeling the burn.
There’s little chance of this trend stopping in 2018, and with sentiment clearly to the downside, it may be time to kick this underperforming stock to the curb.
Source : MTV