Stock Market Crash Warning: Don’t Get Caught Holding These 3 Blue-Chip Stocks
Not everyone is feeling good about the stock market. Inflation has been picking up, and interest rates have remained elevated. Earnings reports for tech companies have been good for the most part, but that doesn’t mean the market will remain attractive over the next few years.
Time in the market beats timing the market. However, some corporations look unlikely to outperform the S&P 500 or deliver meaningful long-term gains for investors. Holding onto unprofitable stocks can bring your portfolio down. These blue chip stocks do not look promising for long-term investors.
Disney (DIS)
At first glance, things look good for the House of Mouse. Disney (NYSE:DIS) shares are up 24% year-to-date and outperformed the stock market. Unfortunately, a wider lens will reveal significant underperformance, such as a 16% drop over the past five years.
The activism buzz contributed to Disney’s year-to-date gains, but that campaign has concluded. Investors will have to look deeper into Disney’s underlying business; recent financial results weren’t good.
Revenue increased by less than 0.5% year-over-year in Q1 FY24. Diluted EPS was a bit better, going from $0.70 to $1.04 per share. That’s a 48.6% year-over-year increase, but investors shouldn’t expect that growth to continue if revenue stays flat. Most of the company’s net income growth came from cost reductions.
Entertainment revenue dropped by 7% year-over-year, while revenue from Sports and Experiences was up by 4% and 7% year-over-year, respectively. Streaming can be profitable in the fourth quarter of fiscal 2024, but the stock has run up too quickly.
Nike (NKE)
Nike (NYSE:NKE) has fallen off its pedestal. The stock is only up by 10% over the past five years, including a 25% drop over the past year. Supply chain concerns, inventory glut, and more competitors have put the stock in a corner.
Nike reported revenue that was “slightly up” in Q3 FY24. “Slightly up” is code for 0.31% year-over-year revenue growth. Furthermore, net income declined by 5.5% year-over-year. The athletic apparel company trades at a 28 P/E ratio. Nike’s valuation is currently higher than Meta Platforms (NASDAQ:META) and close to Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) valuation. That doesn’t make much sense. Nike’s valuation is also similar to its growing competitor, Deckers Outdoor (NYSE:DECK), which also doesn’t seem reasonable.
An economic slowdown can put further pressure on Nike and its high prices. Competitors can swoop in with more affordable products that are still high quality. It’s been a tough few years for long-term investors. Although the stock offers a 1.57% dividend yield, the 5-year gains look bad.
Cisco (CSCO)
Cisco (NASDAQ:CSCO) is a mature networking hardware company. It has a cybersecurity component through its recent Splunk acquisition. Long-term investors haven’t been too pleased with Cisco as it has been down by 13% over the past five years. The stock has a 14.5 P/E ratio and a 3.34% yield, which looks good on the surface. However, revenue and net income are both decreasing.
Revenue decreased by 6% year-over-year in Q2 FY24. Meanwhile, GAAP EPS dropped by 3% year-over-year. These decreases are taking place during a period of economic strength. Other tech companies are reporting solid earnings, but we haven’t seen that with Cisco.
The stock seems destined to underperform the stock market, and it’s not the best pick leading up to a correction or a crash. Cisco is down by 5% year-to-date and only has a 3.40% compounded growth rate for its dividend over the past five years. It seems like Cisco is doing the bare minimum with its dividend hikes, which isn’t good for investors who want elevated cash flow.
On the date of publication, Marc Guberti did not have (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.
