After a rough start to the week, the markets are back in rebound territory.
While recent economic data this week isn’t spurring on the bulls, it isn’t so bad as to encourage the bears to start selling off in earnest.
The economy seems to be solid and while next-year growth may be slow, it doesn’t look like there are any dangers that would completely derail it.
But the fact that the Fed still has to support the market with quantitative easing and mortgage-backed security buying, while also acting as the lead lender in the U.S. overnight lending market, shows that while the economy has wings, they can only get it aloft as much as a chicken.
The seven lumbering large-cap stocks to avoid below are stocks that have been in a downtrend.
And given their size, it’s going to take a while for them to regain and sustain any altitude. There are plenty of other large cap growers out there, don’t hold and hope on these.
These are all “F”-rated stocks in my Portfolio Grader right now.
Large-Cap Stocks to Sell: Exxon Mobil (XOM)
Exxon Mobil (NYSE:XOM) may be throwing off a 5.1% dividend, but that doesn’t help when the stock is off 14% in the last 12 months.
With a market capitalization of almost $290 billion, it’s not like XOM is going to disappear off the face of the earth, but it certainly isn’t a good choice now.
Oil prices have been locked into a tight trading range in the mid $50 range, which has seen some upside movement in recent days. U.S. inventories were emptied more than expected around the holidays. This may be a sign of an upturn, but with the global economy stabilizing rather than expanding, it’s not likely that global demand is going to take off — even if the Saudis cut production at their OPEC meeting this week.
Also, Russia and China just finished a pipeline from Siberia to Shanghai, so the natural gas China usually got from the U.S. is now online and getting shipped from Russia.
When times are bad for energy, XOM loses all the way up and down the energy markets.
Equinor (NYSE:EQNR) is a leading integrated oil company that is based in Norway.
Norway has significant offshore energy assets and this is the company that manages all levels of upstream, midstream and downstream aspects of those assets. It also has operations in the U.S., Mexico and other countries as well.
Again, this isn’t a great time to be an integrated oil company. And its 4.4% dividend makes much difference when the stock has lost nearly 24% in the past year.
There’s a decent chance things will turn around, since the energy markets are highly cyclical, but there’s no point waiting for that to happen. Other sectors are producing good gains right now, including many stocks that pay strong dividends — a combination I like to call the Money Magnets.
And the global economy still isn’t out of the woods. Also, as China adapts to the trade war, there may be a permanent shift in demand.
Schlumberger (NYSE:SLB) is the largest oilfield services company in the world, and has been for some time. It’s been at this since 1926, which means it survived the Great Depression, a World War and the Great Recession.
It is one of the mainstays in the energy world and the perfect bellwether for the industry. If demand is growing and wells are pumping, SLB is doing its work. If those wells are closing and the ones that are pumping are slowing down production, SLB is along for the ride.
Its global diversification can help keep it busy, but aside from supporting oil companies in managing their supply and production, it also does a fair amount of work in exploration services.
But when fields are going idle, exploration isn’t exactly booming.
Its 5.7% dividend isn’t too tempting right now, since it’s off 19%.
FedEx(NYSE:FDX) is certainly one of the biggest names in logistics. But that is no longer good enough, even in the age of e-commerce.
You would think that this would be a great time of year for FDX. There are projected to be 2 billion packages delivered just between the U.S. Postal Service and FedEx. That should bring in a great quarter.
But FDX has stopped working with Amazon (NASDAQ:AMZN) and is refocusing its business in other areas. Plus, this year there is less time to get everything delivered, and given weather issues, this may get ugly. And that means lower margins. Profitability, and operating margins in particular, are a key component of my Money Magnets strategy for Growth Investor.
There’s also the bigger issue that many companies are looking for alternatives to shipping goods — in-store pick up, local deliveries or local services to deliver the last mile.
Retailers are changing the way they use logistics companies. And that means logistics companies need to retool as well. Add to that the slow global economy and the trade war with China and it’s no surprise FDX stock is off 29% in the past year.
ArcelorMittal (NYSE:MT) is the world’s largest steel producer. It has operations around the globe, not just making steel but mining ore as well.
It is also a perfect indicator of how well the steel industry is doing these days.
And given the fact that the stock is off 24% in the past 12 months, the answer is pretty obvious. Also bear in mind, the stock price is a projection of performance about six months into the future.
The U.S.-China trade war has hit many economies beyond the two titans. Also, car demand in India is at multi-year lows. Emerging markets aren’t doing well because of the shadow cast by the major economies they supply.
If there’s one stock to follow to get insight into the fate of the global economy, MT would be the one. And right now, the stock is telling us there isn’t much upside expected in 2020 for this sector.
Molson Coors Brewing (TAP)
Molson Coors Brewing (NYSE:TAP) announced a restructuring in late October. And part of that restructuring was cutting 400-500 workers. The CEO’s statement began, “Our business is at an inflection point.”
In the age of small brewers popping up all over, the big beer companies — and TAP is certainly one of those — are finding it harder to stay competitive. Plus, the legalization of marijuana in over a dozen states combined with the fact that younger generations are less interested in drinking (or eating) carbs, also has posed long-term challenges to the way the industry operates.
TAP has chosen to choose its own fate rather than have it chosen by the markets. And it is revamping its product focus to alternative products and its larger brand beers.
We’ll see if it works. But there’s no point in getting in now to see if it does. Its solid 4.6% dividend doesn’t make up for its 20% losses. If you want a nice yield AND solid capital gains, there are better places to look.
Teva Pharmaceuticals (TEVA)
Teva Pharmaceuticals (NYSE:TEVA) has had a tough few years. Once one of the world’s largest generic drug makers, with a few brand name drugs in its portfolio, it is now struggling to find a bottom.
The stock is off almost 74% in the past 3 years, and 52% in the past 12 months. It has been a long, unmitigated slide.
There have internal problems on the management side, tough markets to sell into, the opioid drug issue and rising competition. It has been tough to go from darling to dog so quickly.
But the fact is, some of the troubles were self-generated. Just a couple of weeks ago, Teva Pharmaceuticals was subpoenaed by Brooklyn federal prosecutors along with other generic opioid manufacturers in a new criminal probe.
This is certainly a falling knife that there is absolutely no point in trying to catch until it hits the ground. And right now it’s still gaining momentum.
The bottom line is that pharmaceuticals, like some of the other sectors we just looked at, is a volatile business. This can make it hard to deliver stable, growing gains … much less dividends.
Yet those are both the hallmarks of a successful long-term stock portfolio. So, for that, we’ll have to look elsewhere.
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Source: Investor Place