The market has been on a wild ride this week, and today won’t be much different. But the fact is, there are a number of things going on around the globe that are signaling that a slowdown is underway, trade wars or not.
The United Kingdom just announced that its economy has contracted. Germany’s manufacturing is weakening. Many European Union nations are back to negative interest rates to spur investment. The United States is still doing all right, but the trade war is starting to have its costs.
Adding to this, the U.S. dollar remains the strongest currency out there.
And that’s not good for multinational corporations or companies that rely on the strength or weakness of the dollar for their products.
Below are seven large-cap stocks to get out of your life now, before this all ends up in their next earnings reports. They’re all F-rated in my Portfolio Grader.
Large-Cap Stocks to Sell: Occidental Petroleum (OXY)
Occidental Petroleum (NYSE:OXY) is an integrated energy producer with exploration and production operations in the U.S., Colombia and the Middle East. It recently completed its $55 billion acquisition of Anadarko Petroleum. This deal left Occidental in debt when the company was forced to complete the payment in cash instead of stock. Now OXY has to divest all redundant business to get to the U.S. shale fields Anadarko owned.
Add to this a slowing global economy, rising oil inventories and trouble in Venezuela — Colombia’s neighbor — and you have a lot of headaches ahead.
There’s a reason OXY stock is off 23% this year and 40% in the past 12 months.
FedEx (NYSE:FDX) is the well-known global shipping and logistics business. And it’s having a rough go of it because of its far-flung empire.
The U.S.-China trade war doesn’t help and the strong dollar is a potential double whammy to its business since all revenue derived abroad is worth less when converted back to dollar terms. This is one of the big consequences facing U.S. companies doing business in China, especially now that China has lowered its yuan against the dollar.
China’s move has also lowered the Singapore dollar as well, since it trades in a close ratio to the yuan. In Europe, Brexit is hurting the British pound and most of the mainland is struggling with negative interest rates as their economies slow.
Add to that FedEx’s recent announcement that it’s ending its relationship with Amazon (NASDAQ:AMZN) and there’s going to be some adjustment in expectations moving forward. Year-to-date, the stock is up less than 2%, and it’s down 32% over the past year.
Kraft Heinz (KHC)
Kraft Heinz (NASDAQ:KHC) became the fifth-largest food company following its 2015 merger. But things haven’t gone as expected.
Over the past three years, the stock has been on a downward trajectory that at this point seems unstoppable. Kraft and Heinz used to be two bedrock consumer staples companies that owned some of the most iconic brands on supermarket shelves. But times have changed.
Younger generations aren’t as beholden to those brands and tastes and demographics have changed. As a new wave of non-European immigrants start to show their buying power, ketchup and mac and cheese are not the foundation of comfort foods they once were.
While KHC stock still delivers an impressive nearly 5.7% dividend, it doesn’t make up for a stock that dropped 34% year-to-date, and 53% in the past year — as well as 68% in the past three years.
Archer-Daniels-Midland (NYSE:ADM) is one of the largest publicly traded agricultural companies in the U.S. But this year hasn’t been kind to farmers, and thus, to ADM.
The latest escalation of the trade war saw China retaliate by swearing off all American agricultural products. Bear in mind, it took many years to establish the previous U.S.-China trade relationship.
Now, China has leased land from Russia’s far eastern region and is growing its own soybeans there. That isn’t just a short-term fix, that’s business that U.S. farmers may have lost forever.
Add to that the flooding in the spring that made corn planting difficult — if not impossible — for Corn Belt farmers. But prices are still low and aren’t helping farmers stabilize. The taxpayer-funded aid isn’t a long-term solution and hardly covers the expenses many need to keep going.
ADM stock feels all of this. The stock is off 6% year-to-date and 23% in the past year.
ArcelorMittal (NYSE:MT) is the world’s largest steel producer. That’s usually a good thing, since it can balance between mining operations for iron ore and steel production. But when there’s not a lot of growth going on, industrial commodities is the first sector that gets hit.
Recently, the prices of iron ore and coking coal — the two main inputs in steelmaking — have risen, making steel even more expensive to produce. Add to that waning demand and it’s hard to make a buck.
MT stock’s second-quarter earnings tell the story. The company lost nearly $500 million in Q2 after writing down almost $1 billion in impairments. With growth projections falling around the world and the dollar strong, it’s not a good place to be right now.
Off 30% year-to-date and 52% in the past year, MT stock is not a good choice now or in the near future.
AbbVie (NYSE:ABBV) owns the world’s most profitable prescription drug, Humira. Now, Humira became off-patent in 2016, but you wouldn’t know that from the sales. Advertising for the drug also continues unabated. Why? Because ABBV went to court in both the U.S. and E.U. to fight to keep biosimilars, drugs that are nearly identical, out of the market for another seven years.
And while the case made its way through courts over a couple years, E.U. courts allowed biosimilars to remain on the market through late 2018. The U.S. courts gave Humira its dominance (and pricing power) until 2023.
While AbbVie has a stable of solid drugs out there, it’s hard not to see Humira as its chief breadwinner. And that status is waning. Add to this threats from U.S. consumers and politicians to transition to a more consumer-focused healthcare system where prescription drug cost prices will be better negotiated.
This is all part of the reason why AbbVie recently offered to buy out Allergan (NYSE:AGN) for a whopping $63 billion. However, that deal has yet to get approved, and it will take a while to assimilate the acquisition if it does.
All of these are real risks.
Ryanair (NASDAQ:RYAAY) is the world-renowned, low-fare airline of Europe. While plenty of people have tried before to capture that market, RYAAY has had the most enduring success.
But, the airline has come up against an immovable force that may not spell doom for the company, but certainly has chilled investors’ enthusiasm. The airline has had to suspend about 30,000 flights because it was a big customer for Boeing’s (NYSE:BA) 737 MAX 8 planes. When that model was taken out of the sky, it impacted many airlines. But RYAAY got hit significantly, since its entire business is ferrying people around Europe for bargain prices.
It can’t expand service now and the savings new jets would bring in efficiencies are no longer there. Those 30,000 flights represent five million passengers. Ryanair also has to cut back operations at airports and close some of its hubs.
This is a significant disruption to an airline that was already running a business on thin margins and high volume. And there’s still no sign when the airplanes will be cleared for take off.
Off 13% year-to-date and 38% in the past 12 months, this stock is going to have trouble achieving cruising altitude for some time.
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Source: Investor Place