Yesterday, we looked at three Dow Jones Industrial Average stocks that are considered a “strong buy” thanks to their high grades from my power stock tool, Portfolio Grader. Johnson & Johnson (NYSE:JNJ), Pfizer (NYSE:PFE) and Travelers (NYSE:TRV) all have the type of strong fundamentals that historically have led to outperformance and market leadership.
Focusing on the very best stocks can help even conservative blue-chip investors improve their investment performance, but just as important as finding winners is avoiding the losers, which can drag down your whole portfolio.
Today, I want to examine the three stocks in the Dow that receive the lowest possible grade of “F” and should be sold or avoided for now.
Alcoa (NYSE:AA) strikes me as a perennial “next year” stock. The analysts are always telling us that next year will be the year this company finally turns the corner. That’s the case again in 2013, as despite weak results in 2012, the experts are predicting solid profits for the aluminum company. I’ll believe it when I see it — and more importantly, when it shows up in the Portfolio Grader scores for the company. For right now, Alcoa’s fundamentals are terrible. The company made just 16 cents a share in 2012 — a mere shadow of the $2.90 a share it earned five years ago. Revenues have declined by roughly one-third over the same time frame. This is a “show me” stock, and the fundamentals are showing us that we should avoid Alcoa.
How the mighty have fallen. For many years, Intel (NASDAQ:INTC) was a market-leading growth stock that dominated the fast-growing semiconductor business. Intel still dominates the industry, but it’s no longer a fast-growing industry with huge profit margins and burgeoning demand. The personal computer market is moribund and not likely to recover for some time — if ever — as global consumers are still very cautious and reluctant to spend money for upgrades and new equipment. Revenues are likely to be relatively flat, and margins will contract slightly for the tech giant. Intel’s fundamentals probably won’t recover until we see a robust consumer, meaning INTC also should be avoided or sold for now.
Investors got excited when earnings for Caterpillar (NYSE:CAT) exceeded analyst estimates back in December. However, reality eventually reality set in, and shares of the world’s leading heavy equipment manufacturer gave back their short-term gains and returned to a downward trajectory. The truth is that sales and earnings were both substantially lower on a year-over-year basis, and there’s not much hope for improvements in the near-term. There simply is not enough economic activity to spur demand for the company’s products, and Caterpillar has to cut production to prevent inventories from piling up. This is a great company, but right now we are in the wrong part of the economic cycle. CAT shares should be sold or avoided.
Also, don’t forget to take a look back at the three Dow stocks to buy.
Louis Navellier is the editor of Blue Chip Growth.