We have a new president and the market has been in rally mode. Time to celebrate with a few blue-chip stocks, right?
Well, that all depends on the stocks in your portfolio. Some of those beaten down blue-chip stocks that you have held on to in the hopes that this rally would come are more likely to sink you than they are likely make your portfolio soar.
The current rally is likely short-lived as everyone settles into the new possibilities in Washington.
This was the honeymoon the markets gave the new administration. The assumption is that with republicans controlling Congress and the White House, business will be able to operate more unfettered, more profitably and more efficiently.
But that doesn’t mean every business will prosper. There will always be winners and losers. And while the winners make the news, I feel it’s important to talk about the losers now. Below I will go into more detail why I have picked these seven blue-chip stocks to sell.
Blue-Chip Stocks to Sell: Gilead (GILD)
Gilead Sciences, Inc. (NASDAQ:GILD) once ran among Wall Street’s darling blue-chip stocks for years. It had the only drug on the market that cured many people of Hepatitis C and saved them from an extremely expensive liver transplant.
And it was the pricing of this drug — $94,000 for a 12-week regimen — that turned GILD into a superstar. A liver transplant runs about $600,000. So, a $94,000 price tag was a bargain given the amount insurance companies would have to dole out on a liver transplant.
But now, lots of competitors have entered the hep C market and it has done damage to GILD’s stock price. From a 52-week high of 108, this blue-chip stock now trades around 77. For the year, GILD is off almost 25%.
It’s likely to stay there, if not fall further as margins get tighter, as it has no significant blockbusters in its arsenal.
Blue-Chip Stocks to Sell: China Life (LFC)
China Life Insurance Company Ltd. (ADR) (NYSE:LFC) would seem to be an important player in a growing industry in a country where growth is still chugging along at 7% and millions of new people enter the middle class every year.
But that robust growth is not fast enough to keep many Chinese firms growing in unison. Plus, there’s a large overhang of uncertainty regarding the direction of the economy. If China continues to flag, it would be very dangerous to the global markets.
Also, the government has unpegged the yuan to the U.S. dollar and then has begun to weaken the yuan. This is very bad for LFC since it holds massive amounts of money in bonds and other Chinese investments. Weak exports don’t help either.
In the past year, LFC has been looking for creative — and more aggressive — ways to grow the business. This has analysts unsettled.
And shares of this blue-chip stock has lost 32% of its value since this time last year. This trend is by no means over and things could get worse before they get better.
Blue-Chip Stocks to Sell: Lloyds Banking (LYG)
Lloyds Banking Group PLC (ADR) (NYSE:LYG) is the legendary financial house based in London that insured the most unique things — a food critic’s taste buds, Betty Grable’s legs, a cricketer’s mustache and even the voices of Bruce Springsteen, Bob Dylan and Rod Stewart.
But LYC gets most of its money from its international banking sector, not its insurance group.
Suffice it to say, LYC has seen better days in the banking world. First there was a commodities scandal years back that crippled the firm in Asia. And more recently, the Brexit vote has completely destabilized the banking sector in the U.K.
The market hates uncertainty and there are few things that are more uncertain than how the U.K. and the rest of the European Union are going to sort out Brexit. This, and the fact that the British pound has been hammered in the process, has led to 33% selloff in LYG in the past 12 months.
And the near future is not bright.
Blue-Chip Stocks to Sell: Royal Bank of Scotland (RBS)
Royal Bank of Scotland Group PLC (NYSE:RBS) was one of the biggest suckers in the financial crisis. Through greed and ignorance RBS bought a huge amount of the credit default swaps and collateral debt obligations that were the repackaged subprime mortgage debt.
It was also found to be manipulating the markets a number of times in the past eight years. Last month it was reported that RBS was looking at a $27 billion legal bill this year. And that’s a decade after the financial meltdown.
There are some serious problems here that have yet to be addressed. And that doesn’t even include the challenges of this weakened bank successfully navigating Brexit.
RBS is off 30% in the past five years and it’s of 46% in the past 12 months. This is a slow motion swan dive. Avoid.
Blue-Chip Stocks to Sell: Nokia (NOK)
Nokia Corp (ADR) (NYSE:NOK) used to be the largest mobile phone maker in the world. But those days are long behind it. It sold its mobile unit to Microsoft Corporation (NASDAQ:MSFT) a few years ago and even MSFT stock is having trouble figuring out what to do with it.
NOK’s mobile market never made the jump to the next generation in mobility communications. It had its own operating system and no one wanted to build on it since it wasn’t a big player in the smartphone market. It was innovative but insular.
Now NOK is a mobile telecom framework provider, basically a fancy way to say it builds wireless telecom networks. The hope was to stick with its core strength and make solid money long term.
But Swedish competitor Telefonaktiebolaget LM Ericsson (NASDAQ:ERIC) blew that hope out of the water when it announced a major drop in quarterly earnings last month. The surprise may be an industry issue, which would mean NOK may be vulnerable as well.
This blue-chip stock is off 34% in the past five years and off nearly 40% in the past 12 months. Don’t try to catch this falling knife.
Blue-Chip Stocks to Sell: Chipotle (CMG)
Chipotle Mexican Grill, Inc. (NYSE:CMG) was the darling of Wall Street not too long ago. My, have times have changed.
CMG was the Starbucks Corporation (NASDAQ:SBUX) of fast food. It offered quality ingredients to consumers who were willing to spend a little more to get more perceived value.
And then the food poisoning cases cut it down to its knees. What has made it worse is, many analysts worry that CMG’s leadership isn’t really addressing the loss of faith among its faithful customers. It has taken the approach that it has dealt with the issues and now it’s time to move forward. The less said, the sooner healed.
That may be fine for some companies, but given its sky-high valuations and its brand identity, ignoring this problem hasn’t worked very well. Plus, there are few barriers to entry into its market and it’s so big now, that stagnating growth spells doom for this once blue-chip stock.
CMG has returned 19% in the past five years. That is not impressive. In the past year, the stock is off 36%. Walk away.
Blue-Chip Stocks to Sell: Cardinal (CAH)
Cardinal Health Inc (NYSE:CAH) is a supplier to the healthcare and pharmacy industries. In the healthcare sector it provides products that are used by private practice offices, ambulatory services and hospitals to manage patients’ recovery and health.
Its pharmaceutical practice its specialty is radiopharmaceuticals. These are radioactive drugs that are given to patients to allow healthcare providers to gather images inside a patient’s tissues. They’re especially prevalent in cancer assessments as well as bone density and gastrointestinal imaging.
CAH has been on quite a run in the past five years — up 58% in that time — but that run has come to an end. The Affordable Care Act was the reason for the run up and it’s also the reason for the fall — the stock is off 20% year to date.
And now, with a republican Congress and White House, there will be more turmoil for CAH. There’s more downside than upside with CAH for now.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.