Why These 3 Blue-Chip Stocks Are Struggling to Perform
While the stock market has performed well this year, the gains have not been spread broadly. Many well-known companies and underperforming blue-chip stocks have trailed the market’s performance and disappointed investors.
Poor-performing blue chips reached their current predicaments due to several factors, such as declining sales, weak earnings, sour sentiment, and rising competition. Whatever the reason, there are many stocks that are in danger of becoming value traps.
For investors, it helps to be able to spot these poor performers and separate them from stocks that continue to deliver outsized gains. Here is why these three struggling blue-chip stocks have underperformed.
Target (NYSE:TGT) stock has struggled since the pandemic ended. Having over-ordered during the Covid-19 crisis when its online sales boomed, Target now has a glut of inventory that it has struggled to unwind over the past 18 months. At the same time, the company has been hit by a steep rise in wage growth for its more than 440,000 employees. The company has also been hurt by reduced consumer spending, especially on big-ticket and discretionary items.
The entire situation has pressured TGT stock, which has declined 15% over the last 12 months, including a 12% drop this year. As markets have notched double-digit gains since January, Target’s share price has trended lower.
However, there is reason for cautious optimism. The company’s first-quarter earnings beat Wall Street expectations and it maintained its forward guidance for the year.
Also, it’s worth noting that over five years, TGT stock has increased 70% even with the slump over the last 12 months.
The Gap (GPS)
Shares of once mighty clothing retailer The Gap (NYSE:GPS) continue to be a mess. So far this year, GPS stock is down 19%. While that decline might not seem so bad, look out five years and the situation gets pretty scary.
Since 2018, The Gap’s share price has plunged 70%. At this point the stock is a long-term disappointment and at risk of becoming a value trap. The stock reached its all-time high nearly a quarter of a century ago (in 2000) and has never regained those heights.
GPS stock has been hobbled by a perfect storm of declining sales, poor financial results and an executive carousel. The company has been on the hunt for a permanent CEO since Chief Executive Sonia Syngal departed last summer after just over two years in the top role.
Earlier this year, the company announced the resignations of several other senior executives. Declining sales have prompted the company to close 50 to 55 Gap and Banana Republic stores across North America.
General Motors (GM)
Detroit automaker General Motors (NYSE:GM) is another stock that has become a long-term laggard. The company’s share price today is trading below the level it was at five years ago. While the stock has gained 11% over the last year, its growth continues to trail the broader market.
This is disappointing given General Motors’ position as a global leader in the automotive sector. GM stock also looks woefully undervalued at current levels, trading at just six times future earnings.
General Motors’ sagging share price also comes despite the vehicle manufacturer continuing to post earnings that have exceeded Wall Street expectations.
For this year’s first quarter, GM crushed analyst expectations across the board and raised its forward guidance. The company now expects earnings in a range of $6.35 to $7.35 a share, up from a previous target of $6 to $7.
The issue holding GM stock back is the company’s transition to electric vehicles. General Motors is spending $35 billion to electrify its vehicle fleet. Investors are taking a wait-and-see attitude.
On the date of publication, Joel Baglole held a long position in GM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.