When looking at a number of overvalued blue-chip stocks, “Sell in May and Go away” fits. Typically, blue-chip stocks are generally among the safest stocks to own. These are companies that generate consistent revenue and earnings because their products are generally in demand no matter what’s happening in the economy. But even blue-chip stocks can get overvalued. That appears to be the case now. For a variety of reasons, there are several blue-chip stocks to avoid in this market. Here are seven overvalued blue-chip stocks to sell now.
| TGT | Target | $138.93 |
| BUD | Anheuser-Busch | $57.15 |
| DIS | Disney | $88.29 |
| AXP | American Express | $157.24 |
| CAH | Cardinal Health | $82.83 |
| CPB | Campbell Soup | $51.51 |
| T | AT&T | $15.50 |
Target (TGT)
As I write this, many investors may be getting ready to pound the Buy button on the Target (NYSE:TGT) stock. The stock is down 14% in the last 30 days. And over the last year, the stock is now down about 11%. All thanks to what appears to be an overreaction to the company’s earnings report. But Target is a dividend king and with the stock trading at a heavy discount, it should hardly be considered one of the overvalued blue-chip stocks, right? Maybe and maybe not.
The immediate pressure on the stock is due to backlash surrounding the company’s recent launch of Pride wear. The company has offered Pride-related merchandise for over 10 years. But this is a different time, as is some of the merchandise. Investors, and Target management, would make a mistake to believe this is simply a case of consumers protesting LGBTQ+ merchandise.
In general, I’m not a fan of a company committing an unforced error. And that’s what I see here. At a time when sales and earnings are under pressure, a boycott of any length and severity would be less than helpful. And don’t forget that Target is still facing problems surrounding theft and organized retail crime. The company said this will affect the company’s profit by $500 million compared to 2022.
Anheuser-Busch (BUD)
Another company facing a boycott is Anheuser-Busch (NYSE:BUD). By now the reasons are all too familiar. BUD stock is down 13% in the last month and that has wiped out virtually all of the stock’s gains in the last 12 months. This is significant because prior to the recent controversy, Anheuser-Busch was managing to reverse what was a five-year downtrend for the stock. Like I said of Target above, this is an unforced error that the company doesn’t need at a time when revenue and earnings are precious. However, I do see a light at the end of the tunnel for the company.
Bud Light remains the official light beer of the National Football League. That means the brand will be front and center in consumer’s living rooms and at stadiums throughout the country in less than 90 days. But until then, it could be tough sledding for BUD stock which did receive a downgrade from HSBC after its May earnings report.
Disney (DIS)
The Disney (NYSE:DIS) stock is currently trading near the low it reached at the onset of the Covid-19 pandemic. And that’s despite the return of Bob Iger as the company’s CEO. The company’s Disney+ streaming business lost four million subscribers in the most recent quarter. Consumers are still feeling the pinch of prices at the company’s theme parks. And the company is still mired in a political battle with Florida governor Ron DeSantis.
Eventually, Disney is likely to be just fine. And you could make a case to jump on DIS stock at a hefty discount now. But there are better stocks for investors and that’s why Disney still looks like one of the blue-chip stocks to avoid.
American Express (AXP)
The next stock on this list of overvalued blue-chip stocks is American Express (NYSE:AXP). Once again, by some fundamental and technical indicators, American Express looks like a value. But looking at the company’s last earnings report, there are some reasons for concern.
For the second consecutive quarter, AmEx delivered earnings that were lower from the prior year. And since the earnings report, several analysts have lowered their price targets on AXP stock. At least one analyst issued a downgrade on the stock as well. In this day and age, it’s very uncommon for a blue-chip stock like American Express to get a Sell rating, but that’s what happened here. The likely issue is that the U.S. is still, by most accounts, heading for a recession. And with consumers overextended on their credit cards the company could be looking at charge-offs. The good news for investors is that AXP stock typically performs well out of recessions. But there is likely to be downside risk in the near term.
Cardinal Health (CAH)
Cardinal Health (NYSE:CAH) is the first of the stocks on this list to have at least a fundamental case for being overvalued. The company is trading at a price-to-earnings ratio of 48x. That combined with the CAH stock trading at its 52-week high and you have a combination that generally points to a correction. That is unless the company has a near-term catalyst. The problem for Cardinal Health is that doesn’t appear to be the case. The ongoing concern for the company is shrinking margins. Cardinal Health already operates on tight margins, and the company is facing more competition.
CAH stock is up nearly 5% in the last month. But in the week ending May 25, 2023 the stock is down just over 1%. Since the last earnings report, several analysts have boosted their price targets on Cardinal Health. But the overall consensus is a Hold and at least one analyst has retained a Sell rating on the stock.
Campbell Soup (CPB)
In March, Campbell Soup (NYSE:CPB) delivered a stellar earnings report. It not only beat estimates on the top and bottom line, but both numbers were higher on a year-over-year basis as well. At a time when investors were looking for green shoots wherever they can find them, CPB stock shot higher.
But in the last month, that good feeling has taken a back seat to macroeconomic concerns. Campbell’s Soup will always be a staple play. But it’s also largely a cyclical play. Specifically, the country is moving out of “soup season.” Historically the current and following quarter are the company’s weakest in terms of revenue and earnings. And although the company’s dividend has a respectable yield of around 2.8%, it hasn’t increased the dividend in several years. That means that there’s very little to act as a catalyst for CPB stock. And with short interest up about 4.75% in the last month, it’s a good idea to step away from the stock for now
AT&T (T)
The last of the overvalued blue-chip stocks on this list is AT&T (NYSE:T). And like several other names on this list, at first glance, T stock doesn’t look overvalued at all. But the problem for AT&T comes down to debt. One of the most appealing aspects of T stock is its dividend. But the company missed on free cash flow expectations by $1.5 billion. That means that the company had to fund its most recent dividend with debt. And the company’s debt, which was starting to go down, has started to grow again on a sequential basis. That debt will only get more expensive to refinance.
It would help if the company was growing revenue and earnings. It’s not. Earnings have been down year-over-year for the last year. And revenue is basically flat and also down year-over-year. I can understand if some investors look at T stock around $15 and think that it’s too good to be true. I would encourage them to go with that thought because with no growth catalysts on the horizon, T stock may be a yield trap in the making.
On the date of publication, Chris Markoch 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.
