Usually, I like to share great stocks to buy or stocks that you need to sell or avoid. Today, it’s a bit of mix.
These are great stocks — some are portfolio holdings — but this just isn’t the time to buy them. What that means is, most of these stocks have very low Portfolio Grader quantitative scores and middling fundamental scores. That tells us these aren’t the market leaders they have been.
But it doesn’t mean they won’t be again. It simply means that other sectors are gaining more interest and funds are likely selling shares of companies with big profits to move into new sectors.
However, quality will win out and these mega-cap stocks will be buys once again. There’s just no point in buying them when they may be cheap in a month or two. Keep your powder dry and wait for a better time make your move. And if you own them, just hold on.
- Alibaba (NYSE:BABA)
- Amazon (NASDAQ:AMZN)
- Disney (NYSE:DIS)
- PayPal (NASDAQ:PYPL)
- Visa (NYSE:V)
- Verizon (NYSE:VZ)
- Walmart (NYSE:WMT)
Mega-Cap Stocks to Avoid: Alibaba (BABA)
This is the only Chinese company on the list, so its challenges are different to some extent than the rest of the U.S.-based companies here.
Earlier this year, the Chinese government surprised investors with a very direct and chilling statement that the mega-cap stocks in China will not have free reign to expand operations however they wish, particularly into the financial markets.
This created quite a stir in global markets and has had a significant chilling effect on Chinese mega-cap stocks to this day.
The markets like predictability. Any unpredictability usually results in selling. And that’s what happened here. No one knows if BABA and other Chinese stocks will remain U.S.-traded stocks or if the Chinese government will enact even harsher limits on corporate growth.
BABA stock has lost 46% in the past 12 months. And it’s still a falling knife.
This stock has a F rating in my Portfolio Grader.
Amazon.com (AMZN)
With a nearly $1.7 trillion market cap, AMZN certainly isn’t in some kind of considerable trouble. But its powerful run during the teeth of the pandemic and the massive flight to safe growth afterwards has driven AMZN to sky-high levels.
For example, its current price-to-earnings ratio is 64x, well above the Nasdaq 100 average P/E of 40x. Much of this is a result of its powerful 2020 performance and its continued value for growth and safety.
But those kinds of valuations are no longer sustainable in a transitioning market. And this super mega-cap stock has only managed a sub-3% gain in the past 12 months. There’s no hurry to jump in here.
This stock has a D rating in my Portfolio Grader.
Disney (DIS)
There are a few challenges for this iconic mega-cap stock. First, given the spread of the omicron strain — and a new one in France just discovered — its massive resorts and parks around the world won’t likely be a full capacity. And they may well get shut down again.
As for its streaming service, while the initial growth was impressive, it’s not really dominating like many expected or projected from its launch. And it has significant competitors in the space that are very focused on just streaming entertainment and not as diversified as DIS.
Most surprising is the fact that DIS stock is now trading at a current P/E of 144x. That’s what happens when the stock is bid up wildly yet the earnings aren’t reflecting that optimism. The stock actually lost 12% in the past 12 months. A reckoning awaits.
This stock has a D rating in my Portfolio Grader.
PayPal (PYPL)
Financial technology (aka, fintech) companies have been very hot since the lockdown. That was a watershed moment for staid legacy banks and credit unions. For generations banks saw themselves as a conservative, service-based business where they were the arbiters of consumers’ and business’ needs.
But once their branches got shut down, loan revenue and foot traffic dried up. Many financial institutions had to scramble. The go-slow approach to fintech had to be accelerated and many banks didn’t have the leadership in place to pivot effectively.
Fintechs took off. And this was a great opportunity for PYPL, a fintech pioneer. In the past three years, PYPL stock is up 122% and that’s after 26% in the past three months. But it’s the selloff that’s the issue right now. The fintech space is becoming increasingly dynamic and global and that has meant more competition for some of the leading mega-cap stocks in this sector.
This stock has a D rating in my Portfolio Grader.
Visa (V)
While V has been around since 1958 and is one of first credit card companies in the world, it’s now a major player in the fintech boom. But what once looked like a dominant position in the payments sector is now viewed as a challenge to its primacy by up and comers.
V and other payments companies work as middlemen between merchants and banks. They hold the risk of payment before the bill is paid and cleared by the bank. For this risk, they take a cut from the merchant and the bank.
But those cuts are getting smaller as new competition that doesn’t have to deal with the legacy systems and overhead are entering the markets. And that’s a challenge for V right now.
V stock has been treading water for the past 12 months, after a big run in 2020. But V has shown its resilience and it’s already opening new channels in the fintech sector. It’s just not a top pick at the moment.
This stock has a D rating in my Portfolio Grader.
Verizon (VZ)
Back in the old days, Ma Bell ran U.S. telecommunications. Then in 1983 an antitrust lawsuit broke it up and the Baby Bells were born. What we know today as VZ used to be Baby Bell, Bell Atlantic. With dominion over the much of the East Coast, Verizon had most major cities as its customers. And when wireless arrived, VZ had plenty of cash to splash around to expand a wireless network from coast to coast.
VZ cut an impressive path as it became the leading mobile telecom carrier and had a state of the art fiber optic network that offered internet, entertainment and mobile packages as well.
But the mobile world has shifted once again. And it has been a challenge for VZ to maintain its primacy in this new world. And that has made it a less than stellar option for now. Granted its current P/E is just 10x, and it has a 4.7% dividend yield, but VZ’s direction isn’t certain.
This stock has a D rating in my Portfolio Grader.
Walmart (WMT)
With a near $400 billion market cap, WMT remains one of top retailing mega-cap stocks in the world. And its ability to catch the e-commerce wave early certainly helped when the pandemic hit.
What’s more, WMT also has a lot of stores where customers can simply pick up products after ordering online. That’s a new and important trend in same-day service. Also, Walmart super stores have groceries, which keeps them open as an essential service if there’s another lockdown.
However, WMT is fully valued here, with a current P/E of 50x. Remember, this is a low margin business, not a high margin tech stock. WMT stock has been treading water for the past year, and it’s likely to test its recent lows before moving to new highs.
This stock has a D rating in my Portfolio Grader.
— Louis Navellier and the InvestorPlace Research Staff
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Source: Investor Place