Obey the Sell Signals: 3 Blue-Chip Stocks to Let Go
FOMO is carrying the day, week and month on Wall Street. And the rally is starting to spread beyond the tech sector. This means some blue-chip stocks are beginning to catch a bid. That’s encouraging news. However, while this rally may have legs, there are still some blue-chip stocks to avoid.
Blue-chip stocks are sought after for their financial stability. These companies tend to stack quarter after quarter of solid revenue and earnings. And many pay dividends, which adds to their appeal.
But no stock moves in the same direction all the time. Some investors are content to hold their stocks, knowing that a turnaround is just a matter of time. However, sometimes a better course of action is to sell and wait for another opportunity.
Remember, selling a stock doesn’t mean saying goodbye to a stock forever. It may not even mean exiting a position completely. But it does mean recognizing when the opportunity cost of holding a stock is more than the price to sell.
That’s the case with these three stocks. And that’s why they make this list of blue-chip stocks to avoid.
I put Target (NYSE:TGT) on a list of stocks to sell in June. Despite some periods of growth, TGT stock has been flat over the last 30 days. However, the stock may have found a floor after tumbling 18% since May.
The acute reason for the sell-off is well known. And while it was part of my consideration in May, it isn’t now. In the larger picture, the company is strong enough to overcome it. However, just because the stock may have found a bottom doesn’t mean it’s ready to rip higher.
To begin with, retail sales are softening. That offsets any benefits the company may get after rightsizing its inventory.
Second, as I wrote in May, Target expects the ongoing issue of theft and organized retail crime to negatively impact profits by $500 million year-over-year. The company’s earnings in the prior quarter were better than expected but still lower than the prior year.
Analysts are forecasting full-year profits to grow by 24%. That looks less likely, particularly if retail sales continue to soften. You can wait until the company reports June earnings to make your decision on TGT stock.
Netflix (NASDAQ:NFLX) is up 10% in the last 30 days and is getting ready to report earnings that may move the stock higher. The company’s earnings call will focus on the success of Netflix’s crackdown on password sharing and consumer adoption of its low-price Standard With Ads platform.
I have a different concern. The company relies heavily on original content to differentiate itself in an increasingly saturated and competitive market. And the current Screen Actors Guild (SAG-AFTRA) strike doesn’t help matters.
According to industry experts, streaming services will likely run out of new content by October. The strike could be over by then, but what if it’s not? Historically, Netflix has had a lower churn rate than many streaming services. And to be fair, the SAG-AFTRA strike will affect all streaming services. But it’s still a reason for concern and why it makes this list of blue-chip stocks to avoid.
Moderna (NASDAQ:MRNA) makes this list of blue-chip stocks to avoid for a specific reason. The company’s pipeline, while robust, does not show any vaccines that are likely to be approved in the next 12 months.
The company is hoping that a $1 billion investment in China will boost its stock, but there’s no guarantee that it will. Specifically, Moderna is reportedly entering a memorandum of understanding and land collaboration agreement. That will allow Moderna to research, develop and manufacture vaccines that use the company’s mRNA technology in China. Initially, these vaccines would only be available in China.
Analysts suggest there could be a 39% upside to MRNA stock. And if you only look at the company’s price-to-earnings (P/E) ratio, which is around 10x, it may seem compelling. But those earnings are expected to decline sharply in the next 12 months. That makes the stock a much less certain bet.
On the date of publication, Chris Markoch 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.