Investors often flock to blue-chip stocks for their reliability, financial strength, high quality and strong brands. Unfortunately, several such bets haven’t really paid off this year.
While blue chips usually boast reliable businesses that will continue to go strong for years to come, several of the biggest names have been underperforming of late — and arguably because the very brands behind their businesses have been tarnished.
That doesn’t mean these three blue-chip stocks are going to disappear any time soon, of course. But the quality of their underlying brands is definitely sometime to consider for investors betting on blue chips for continued stability.
Take a look at three underperforming blue-chip stocks that have been struggling to maintain their brands’ luster.
YTD Return: 8%
When I was in high school, I was shown the film SuperSize Me a total of three times, in three different classes. For McDonald’s (MCD), that’s an unfortunately accurate representation of the chain’s current reputation.
The golden arches — which were for a long-time the fast-food leader and king — have lost much of their shine in recent years. And there’s a laundry list of reasons why, including concerns about nutrition, food quality, worker pay and more.
Sure, MCD has been hard at work remedying the situation, especially on the nutrition front. The restaurant has added calorie counts to its menus, is offering side salads with value meals and has changed its advertising towards children.
But it’s been a slow process to draw folks back to the iconic chain — last year, MCD posted a global decline in sales for the first time in nine years. And the road ahead is especially rough as rivals like Burger King (BKW) and Wendy’s (WEN) step up their fast-food game.
YTD Return: 7%
The trouble with do-it-all retailer Walmart (WMT) is pretty obvious: Critics continue to argue that WMT is straight-up bad for society, and that debate shows no sign of slowing.
Walmart faces critics from all angles, with many arguing that Walmart’s low prices undercut mom-and-pop business and thus hurt local economies. Many folks also don’t support the company’s import practices, low wages and labor union policies. And it certainly doesn’t help that WMT was also accused of bribery in its Mexico unit.
Toss in the reputation for having messy, dirty, poorly run stores, and it’s no wonder Walmart is an American staple plenty of Americans aren’t proud of, and that many cities have been pushing back against the big-box retailers attempt to expand into urban areas.
For the cherry on top, many shoppers don’t seem to think Walmart’s low prices — the main appeal of the company — are low enough. Countless consumers have been getting their low-price fix at dollar stores like Dollar Tree (DLTR) and Dollar General (DG) instead.
YTD Return: 3%
For proof that The Coca-Cola Co. (KO) is no longer the blue-chip brand it once was, look no further than Interbrand’s annual ranking of the Best Global Brands. The company’s flagship beverage held the top spot for an impressive 13-year run, but that run came to a crashing halt this year.
Both Coca-Cola and Sprite posted meager gains in their brand value, which considers factors including competition, market and financial data. As a result, incumbent Coke slid to third place, and Apple (AAPL) stormed to the top spot.
It’s easy to see why. While Coca-Cola’s red logo and script remains iconic, the tough reality is that soft drinks in general have come under fire — as seen with the attempted ban on large soft drinks in New York — thanks to high sugar content, aspartame controversy and more. In fact, soda consumption recently fell to the lowest levels since 1996.
And Coca-Cola is a much more direct casualty of this trend than diversified food and beverage rival Pepsi (PEP), as seen by KO’s lower slated earnings growth over the next five years.
Alyssa Oursler is an Assistant Editor of InvestorPlace. As of this writing, she was long MCD.