Blue-chips, or shares in established companies with long track records of slow-and-steady growth, may make for great selections in a diversified, long-term portfolio. However, while there are many great blue-chip stocks to buy, there are plenty of blue-chip stocks to sell as well.
In some cases, there are blue-chips where while the long-term forecast remains favorable, in the near-term selling to take profit may be the best course of action. These are blue-chips that have performed extremely well, yet are at risk of a short-term reversal because of valuation and/or temporary headwinds.
In other cases, there are blue-chips where the near-term and long-term forecasts warrant a fast exit. These are blue-chips that, in the past, may have performed well, but have started to (and are at risk of continuing to) underperform.
The blue-chip stocks listed below fall into either of these categories. Most of these blue-chips to avoid are also Dow Jones Industrial Average components, except for one, which is a former Dow Jones component.
Apple (AAPL)
You may question why I would include “Magnificent Seven” component Apple (NASDAQ:AAPL) on this list. However, despite the iPhone maker’s long-term strengths, near-term issues and valuation make it one of the blue-chips to sell.
AAPL stock has pulled back since late last year, but further multiple compression may be justified. A slowdown in iPhone demand in China continues to drag down overall results.
Unlike with other “Mag 7” stocks, boosted higher by the generative AI trend, Apple’s potential AI-related growth catalysts are arguably still at the “work-in-progress stage.”
With famed investors like Warren Buffett and George Soros either trimming (or like Soros’ investment firm, exiting completely) AAPL positions, consider following their lead, by taking profit. That said, with the possibility of AI catalysts beginning to play out down the road, you may want to keep an eye on AAPL, for re-entry at lower prices.
Boeing (BA)
Last month, I laid out the bear case for Boeing (NYSE:BA), citing the recent flight safety controversy with the aerospace giant’s 737 Max 9 passenger jets.
This headwind continues to affect the performance of shares, and is a key reason why BA is one of the blue-chip stocks to sell.
Still, that’s not all. While BA stock has only partially recovered since tanking at the onset of the Covid-19 pandemic in 2020, shares today trade at a valuation that fully prices-in a comeback that has yet to fully arrive. At current prices, Boeing trades for 58.9 times estimated 2024 earnings, and 25.2 times estimated 2025 earnings.
This comes even as Boeing CEO Dave Calhoun concedes that the company may have to “go slow to go fast,” by prioritizing putting quality/safety concerns to rest. This suggests BA could keep falling, before the rebound gets back on track.
General Electric (GE)
General Electric (NYSE:GE) is the former Dow Jones component I hinted at above. GE today is no longer as large and diversified as it once was. This calls into question whether it should be made a Dow stock once again.
Admittedly, sentiment for the industrial conglomerate has improved considerably since getting kicked out of the Dow in 2018. Yet while GE stock has crushed it over the past year (up by 75%), now may be the time to hit the “sell” button.
Valuation is a problem as shares today trade for 32 times forward earnings. Similar to BA, GE is another aerospace play trading at a valuation that prices in a full post-Covid recovery as a near-certainty.
Also, GE’s upcoming spinoff of its last non-aerospace segment could lead to a post-spinoff sell-off, as I argued earlier this month. After a year of smooth sailing, these factors could mean turbulence ahead.
IBM (IBM)
Up until recently, I’d wager a considerable amount of investors would agree with me that IBM (NYSE:IBM) was one of the top blue-chip stocks to sell. In past years, a high dividend was not enough to counter weak growth and sideways price performance for the venerable tech stock.
Over the past few months, however, the market’s view of IBM stock has become much more upbeat. Mostly, due to recent financial results that suggest this company is starting to materially benefit from the generative AI boom.
But while “AI mania” is why IBM has roared higher, it’s a good reason you should make IBM one of the blue-chips to sell. As I pointed out last month, one sell-side analyst (Jeffries’ Brent Thill) argues that the sluggishness of IBM’s legacy business could outweigh this AI growth. This in turn may cause the stock to become an underperformer once again.
Intel (INTC)
Previously, the market was taking a “show me” stance on tech blue-chip Intel‘s (NASDAQ:INTC) turnaround. The turnaround centered on its efforts to become a large-scale chip foundry, or third-party manufacturer for “fabless” chip designers.
However, since last fall, investors have bid up INTC stock, betting on a comeback built around booming demand for AI chips. Back in December, the company unveiled its newest line of chips for the generative AI market. So then, why INTC a blue-chip to sell? For one, with the stock trading for 32.2 times earnings, ahead of AI chip sales really boosting the bottom line, this catalyst may be overly priced-in.
Furthermore, as Louis Navellier and the InvestorPlace Research Staff pointed out earlier this month, recent developments cast doubt on whether Intel’s big bet on foundries will move the needle as much as the company anticipates.
3M (MMM)
3M (NYSE:MMM) has long been one of the blue-chip stocks to sell. Over the past five years, shares in this industrial conglomerate have fallen by around 55.75%. Don’t blame this on sluggish growth but rather the fall-out from not one, but two multi-billion dollar lawsuits.
Even as the company has finally settled this litigation, and despite the fact MMM stock now trades for only 9.6 times forward earnings, and sports a high dividend yield (6.54%), be sure to keep it in the “stocks to sell” category. For one, due to concerning earnings outlook for 2024.
Second, because of the still-elevated risk that this “dividend king” will have to implement a dividend cut. A dividend cut could help the stock in the long run, as a Seeking Alpha commentator recently argued. Still, at the onset it would likely have a materially negative impact on MMM’s price performance.
Verizon Communications (VZ)
Verizon Communications (NYSE:VZ) shares have been on a tear since mid-October. During this time frame, shares in the telecommunications giant have bounced back by around 34.4% off their 52-week low ($30.14 per share).
But whether you got in at this low, or even at higher prices, now may be the time to pull VZ stock from your blue-chip portfolio. Sure, Verizon may be cheap (at 8.8 times forward earnings), with a high dividend yield (6.55%) to boot. The company has also been reporting much stronger financial results.
However, while cheap compared to stocks overall, VZ’s valuation is premium to that of peers like AT&T (NYSE:T). As Moffett Nathanson analyst Craig Moffett has argued, subscription price increases have been too big a factor in VZ’s recent stronger-than-expected growth. The company’s results could soon again disappoint, if high prices and competition lead to subscriber losses.
On the date of publication, Thomas Niel did not hold (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.
