7 Blue Chips at Risk of a Prolonged Slump

Heavy selling into post-earnings stocks underscores just how wobbly this market is

By Anthony Mirhaydari, InvestorPlace Market Strategist

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Blue-chip stocks are trading lower again on Tuesday, on track for the Dow Jones Industrial Average’s sixth consecutive decline, amid ongoing concern by investors and traders over the rise in the 10-year Treasury yield to 3% for the first time since 2014.

But more than that, there is a strange dynamic in play concerning blowout first-quarter earnings results. Profitability is surging thanks to the Trump tax cuts, a strong economy and a tight job market. Yet many earnings reporters are counterintuitively sliding hard following results.

Why? A combination of worries over a recent softening of incoming economic data and cautious comments and guidance from management teams. Here are five blue-chip stocks that have posted some dramatic post-earnings reversals:

Blue-Chip Stocks at Risk of a Prolonged Slump: Caterpillar (CAT)

Caterpillar (NYSE:CAT) shares reversed dramatically on Tuesday after reporting better-than-expected earnings of $2.82 per share (vs. estimates of $2.10) on a 30.9% rise in revenues. Management also raised forward guidance, saying they see earnings of $10.25 to $11.25 per share for the fiscal year vs. prior guidance of $8.25 to $9.25 per share.

The problem was that during the post-earnings call, management claimed that profit margins had likely hit a high water mark for the year during the first quarter on worries over the ability to raise prices amid cost pressures.

After trading above $160, shares fell back to their early April low near $140. A violation here would set up a test below the 200-day moving average which has held since early 2016.

Blue-Chip Stocks at Risk of a Prolonged Slump: 3M (MMM)

3M (NYSE:MMM) shares are down hard, capping a 22%-plus decline from its January high. The decline intensified this week as shares fell out of a two-month consolidation range despite the reporting of better-than-expected earnings of $2.50 per share (two cents ahead of estimates) on a 7.7% rise in revenues.

But management lowered their forward outlook. Earlier this month, analysts at Stifel lowered their estimates on worries over issues such as automotive OEM build rates, slow consumer electronics demand and global growth concerns.

Blue-Chip Stocks at Risk of a Prolonged Slump: Twitter (TWTR)

Blue Chips at Risk of a Prolonged Slump: Twitter (TWTR)
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Twitter (NYSE:TWTR) shares are down 3.8% in mid-day trading on Wednesday, threatening to fall below their early April lows and capping a decline of more than 20% from its mid-March high, following the reporting of better-than-expected quarterly numbers. Earnings of 16 cents per share beat estimates by four cents.

But daily average user growth came in at 10% versus 12% last quarter. Management warned that user metric numbers will continue to face headwinds as suspicious accounts and bots are culled.

While the conservative guidance is likely to be more accurate and growth is good, it’s still slowing and investors don’t like that. Watch for a move down to the 200-day moving average.

Blue-Chip Stocks at Risk of a Prolonged Slump: Google (GOOG)

Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) shares are struggling to stay above their 200-day moving average, continuing in a pattern of lower highs and lower lows going back to late January capping an overall decline of nearly 14%.

The selling intensified this week despite the reporting of better-than-expected earnings of $9.93 per share (beating estimates by 65 cents) on a 25.8% rise in revenues.

Why the decline? Investors were spooked by weak margins. The company will next report results on July 23 after the close. Analysts are looking for earnings of $9.72 per share on revenues of $32.3 billion.

Blue-Chip Stocks at Risk of a Prolonged Slump: Coca-Cola (KO)

Coca-Cola (NYSE:KO) shares are violating a multi-month consolidation range, capping a 12%+ decline from its late January high, returning to levels not seen since early 2017.

This despite reporting better-than-expected earnings of 47 cents per share (beating estimates by a penny). But investors were disappointed forward guidance was merely reaffirmed.

The company will next report results on July 24 before the bell.

Blue-Chip Stocks at Risk of a Prolonged Slump: Goldman Sachs (GS)

Blue Chips at Risk of a Prolonged Slump: Goldman Sachs (GS)
Source: Erik Drost

Goldman Sachs (NYSE:GS) shares are among the weakest presented here, slicing below their 200-day moving average to return to levels note seen since last November for a decline of nearly 13% from their high.

GS along with the big banks that reported results over the past two weeks have posted solid numbers, driven in part by trading revenue from recent market volatility.

But investors are doubtful the good times can continue in what looks like a “sell the news” dynamic. One possible explanation is the worry that higher interest rates could roil the bond market, resulting in portfolio losses on fixed-income holdings.

Blue-Chip Stocks at Risk of a Prolonged Slump: McDonald’s (MCD)

Blue Chips at Risk of a Prolonged Slump: McDonald's (MCD)
Source: Shutterstock

McDonald’s (NYSE:MCD) shares are threatening another breakdown test of a three-month trading range with critical support at $155 under stress. A “death cross” with a downward cross of the 50-day below the 200-day moving average is also in play.

Analysts at Stifel recently lowered their price target on concerns over profitability following the rollout of the new value menu.

The company will next report results on April 30 before the bell. Analysts are looking for earnings of $1.67 on revenues of nearly $5 billion. When the company last reported on Jan. 30, earnings of $1.71 beat estimates by 12 cents on an 11.4% decline in revenues. 

Anthony Mirhaydari is the founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.


Article printed from InvestorPlace Media, https://investorplace.com/2018/04/7-blue-chip-stocks-at-risk-of-a-prolonged-slump/.

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