When blue chips get too popular — like the five I’m going to show you today — these “safe stocks” can actually be dangerous to continue holding in your portfolio.
The problem with blue-chip stocks? Call it the “Curse of the Dow.” The Curse says a stock that joins the Dow Jones Industrial Average will essentially hit a wall, underperforming in the ensuing months compared to how it performed before ascension. It’s not perfect, but it’s close – since 1999, 15 of 16 stocks that have joined the Dow have averaged 1% gains over the next six months, but averaged 11% gains in the six months before inclusion.
There are a few factors, but one of the most prevailing is that by the point a stock has joined the Dow, it’s typically nearing the end of its growth ramp and reaching the slower-growth “mature” part of the business cycle.
The same reasoning can be applied to many blue-chip stocks. A stock typically starts to be considered a blue chip after a long period of sustained growth, even if that growth begins to slow – and after that, a company never really loses the blue chip designation as long as the business doesn’t crumble.
The following five stocks are the worst kind of blue chips. They’re not crumbling, but it’d be better if they were — because then the decision to leave them would be far more obvious.
Instead, these large-caps tantalize investors with their stability and slightly above-average dividends, keeping investors just long enough to weigh them down with underperformance.
Make no mistake: Keeping your money invested in these blue-chip losers is a sure way to set your retirement plans back.