5 dead Dow stocks you can live without

Don't be reeled in by the lure of these big-name blue chips.

By InvestorPlace Oct 26, 2011 8:52AM
By Jeff Reeves, InvestorPlace.com

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.
Procter & Gamble. Procter & Gamble (PG) is a stable consumer stock with huge brands like Gillette, Pampers and Duracell. But it's also a sleepy investment that has gone nowhere for five years, with total revenue below 2008 levels. What's more, the nature of its business leaves P&G open to fluctuations in commodity prices, meaning margins could get pinched by soaring costs of raw materials and energy. Throw in the fact that store-brand sales have been brisk as consumers look to save a few dimes on cheaper cleaning products and other staples, and you have a recipe for little or no growth at P&G in the immediate future.

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.
General Electric. After slashing its dividend from 31 cents per quarter to 10 cents, General Electric (GE) was one of the biggest villains of the Dow during the financial crisis. The dividend has recovered mildly to 15 cents and the stock recovered in kind -- until it peaked at $21.50 in February and then plummeted back to around $16 per share. Lingering credit troubles at GE Capital continue to weigh on the bottom line, the Japan nuclear disaster earlier this year has put a damper on the company's GE Energy reactor business, and broader consumer spending woes continue to hurt appliance sales. Revenue and profits still are down significantly from 2007 numbers, and growth has been very sluggish across the past several quarters. GE isn't going away anytime soon, but it also might not see its shares go up either.



Jeff Reeves is the editor of InvestorPlace.com. Write him at editor@investorplace.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.




Related Articles

12Comments
Oct 26, 2011 9:37AM
avatar
How much more of GE's Jeff Inmelt will the shareholders take; institutional and private. This guy is a loser and the stock will not recover until a new leader with strong business accumen and no personal agenda is put in place. All one needs to do is look at GE's stock performance since Jeff Inmelt took the helm. His record speaks for itself. Shareholders, speak up!!! Insist on new leadership to restore your shareholder value!
Oct 26, 2011 10:50AM
avatar

Let's see........Who knows more about investing- Warren Buffet or "Jeff Reeves"?

Nice try Jeff. Have friends shorting those stocks do you?

Oct 26, 2011 11:28AM
avatar

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. 

Oct 29, 2011 10:24AM
avatar

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.)

Oct 30, 2011 5:33AM
avatar
Immelt is still waiting for that bonanza obama promised G.E. and Intel for that single source medical records software system  once the obamacare got in full swing.I wonder how much obama wants to increase the deficit to pay for that.NBC almost went belly up due to bad decisions,GE's financial almost went belly up due to the derivitives market,i wouldn't be surprised to find out that Immelt was involved with Solyndra.Everything Immelt touches loses,and he is a rino,,if he's a republican,he is the most liberal republican on the planet.If any division in GE makes money,it is not because of him,it inspite of him.
Oct 26, 2011 1:14PM
avatar
I recently bought a GE washing machine with no agitator which has a sensor for filling the machine (although it has a dial for water level settings, the highest setting is as low as can be), and my laundry does not come out clean, each load has to be washed twice, and the laundry has streaks of lint on it.  Believe me, I do not overload the machine; I have never washed such small loads as I do now.  DO NOT BUY THESE WASHERS; YOU WILL BE SORRY.  I will never buy another GE product again, and I caution my family and friends not to waste their money on their products.  No wonder their stock is tanking.
Oct 29, 2011 3:11AM
avatar
I sold my g.e. stock when I found out g.e. was just another looter in washington d.c.
Oct 29, 2011 4:08PM
Oct 29, 2011 5:08PM
avatar
RICH MAN SAYS' Are you serious you going to raise my tax's after all of my "contributions to your cause"FED SAYS' No we are going to raise inflation on the poor #$%$ and act like we are doing them a favor.
Oct 31, 2011 3:41AM
avatar
Be all over GE, BAC, as well as NOK, ACAS, and BP
Oct 29, 2011 11:03PM
avatar

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?

Oct 29, 2011 10:14AM
avatar
bought and sold GE seven times in 2011,  havnt lost on it yet, learn market fundamentals and do your quant homework before complaining,     like the Cardinals, it will get the job done.  Now go read Investor Daily then comment.
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

112
112 rated 1
270
270 rated 2
444
444 rated 3
693
693 rated 4
637
637 rated 5
692
692 rated 6
615
615 rated 7
498
498 rated 8
265
265 rated 9
126
126 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
TAT&T Inc9
VZVERIZON COMMUNICATIONS9
EXCEXELON CORPORATION8
AAPLAPPLE Inc10
ATVIACTIVISION BLIZZARD Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.