5 dead Dow stocks you can live without
Don't be reeled in by the lure of these big-name blue chips.
There's a lot of focus on low-risk blue-chip investments right now. That type of investing strategy is a good one for volatile times, and taking shelter in big-name companies with global operations and a good dividend can provide stability to your portfolio.
But don't be fooled into thinking that all the big boys are the same. Even in the vaunted Dow Jones Industrial Average, there are a number of big-name stocks that are big-time disappointments. These dead Dow stocks have caused investors more stress at a time when they are looking for stability.
If you're considering blue chips right now, make sure your shopping list steers away from these toxic investments. Here are five dead Dow stocks you can live without right now:
Bank of America. It's ironic that Citigroup (C) was the company that got kicked out of the Dow Jones during the financial crisis, but Bank of America (BAC) remains the biggest lightning rod for anger at the financial sector. There are many reasons everyone hates B of A, but investors have plenty of fodder without dipping into public outcry. Bad debt from Countrywide continues to erode the bottom line. Lawsuits over robo-signing and shady lending practices loom. Bank of America earnings remain ugly when you back out one-time gains from asset sales and accounting gimmicks. This stock is down 50% year to date in 2011 for a reason -- don't go bottom fishing in Bank of America.
McDonald's. There is no doubt McDonald's (MCD) has been a great investment lately and is a great blue-chip stock. It is growing despite an already dominant business. It pays a nice dividend and has a bulletproof brand. However, investors need to separate past performance from future returns. The fact is that MCD is up 250% since 2004 and has doubled since 2007 -- and that growth might not be sustainable. MCD's price-to-earnings ratio is pushing 17, when the Dow's average P/E is closer to 12. Yes, there is projected growth that could push up earnings, but it's very likely the success already is baked into the stock after a huge run in the past few years.
JPMorgan Chase. JPMorgan Chase (JPM) is more stable than the aforementioned Bank of America. However, the company reported weak earnings recently that show it's hardly out of the woods. A massive 33% profit decline was revealed in its latest quarter, thanks to a 13% decline in investment banking income. Mortgage fees and other consumer fees were indeed up, but this kind of earnings volatility -- not to mention the same funny accounting tricks that B of A uses to juice profits on paper -- makes it hard to trust the numbers. Worst of all, even if the numbers are good, you can't trust the stock. Consider that JPM was down 25% in August almost exclusively on investor sentiment. You don't want to hang the success of a stock on the psychology of the market, so steer clear of JPMorgan for now.
- Related: Top 10 Dow dividend stocks
Jeff Reeves is the editor of InvestorPlace.com. Write him at email@example.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.
Let's see........Who knows more about investing- Warren Buffet or "Jeff Reeves"?
Nice try Jeff. Have friends shorting those stocks do you?
GE, like the US, is in need of a leader. When Jeff Inmelt was appointed as CEO of GE in 2001 the stock was trading at $40 per share. GE stock went down shortly there after and has remained below $40 per share except for a 3 week period in September 2007. Currently GE stock is trading at $16 per share. A 60% drop under Inmelt's watch.
Jeff Inmelt is well known for being a looser and as such President Obama selected him to head the President's Council on Jobs and Competitiveness and as Chairman of the President's Economic Recovery Advisory Board. Since President Obama appointed Inmelt for these positions GE has transferred over 35,000 jobs overseas and paid zero tax in 2010.
It appears that it takes one looser to know another looser.
Let's see. McDonalds is a loser because it has been too much of a winner lately. Hmmm. Like most stocks, MCD goes up and goes down within a trading range. But the unmistakable direction of the trend is up. Plus you get a nice dividend and a management team that continually grows the dividend. Hold McD for a few years and you will have a very nice dividend yield based on cost. And with a payout ratio of 48%, the dividend is safe for the forseeable future. I have gotten out of MCD after a good run in the past and it has always proven to be a mistake in the long run. If you are looking for a long-term core holding, MCD is a good one.
(For all the GE bashers here, you need to do your homework. If you think GE makes its money from washing machines and jet engines, you should not own the stock. GE is a financial company that happens to also make a few industrial products. They are essentially a bank/insurance company and suffered with the rest of the banks and insurance companies in the meltdown. Know what you own. Listen to the conference calls. Read the annual reports.)
Own GE or don't.....Trade GE or don't.
Pays better then CDs at near 3% and hoping for it to get better,while stock is appreciating.
Guess it depends where you bought in at?
They employ 300,000 in about 100 Countries....They do a lot of stuff.
BTW....Jeff's name is IMMELT......Real easy to tell the "loosers" here?
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With so many regulatory, market and other risks to manage, the banking giant has more downside than upside potential.
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