- While large-capitalization firms are generally solid bets, during recessionary cycles, they’re liable for heart-wrenching drops, making them stocks to avoid.
- Apple (AAPL): Guaranteed to arouse anger, it’s nevertheless worrying that famed investor Michael Burry is short Apple.
- Tesla (TSLA): Another crowd favorite, TSLA is sure to rise again but for now, market conditions make it one of the large-cap stocks to avoid.
- Meta Platforms (FB): Neither the social media firm’s transition to the metaverse nor its core business looks appealing at the moment.
- Comcast (CMCSA): As competition in the digital entertainment space intensifies, CMCSA increasingly looks lost, thus being one of the stocks to avoid.
- Nike (NKE): Although it’s one of the world’s most recognizable brands, the market is sending bad signals for NKE, justifying its inclusion on this list of stocks to avoid.
- United Parcel Service (UPS): With competition intensifying and e-commerce declining as a whole, UPS is likely one of the large-cap stocks to avoid.
- Salesforce (CRM): Against a backdrop of rising inflation and reduced economic sentiment, CRM seems liable for a sharp correction.
In arguably most normal circumstances, investing in large-capitalization companies often represents a solid deal since you’re directing funds toward the most established and proven businesses. But in acutely negative circumstances — say right before a recession, depression or black swan event — many firms in this rarefied category can become stocks to avoid.
Essentially, these investments suffer from a math problem. I’m sure you’ve heard of the phrase, the bigger they are, the harder they fall. Well, it’s the same principle with large-cap stocks to avoid. During the good times, they accrue massive amounts of investor dollars. But when things go awry, this segment can suffer an avalanche of volatility.
Second, the major blue chips often play the role of de-facto economic indicators. For instance, all eyes were glued to the earnings reports of big-box retailers Walmart (NYSE:WMT) and Target (NYSE:TGT), regardless of whether they owned shares or not. For observers, these companies provide the pulse of the American consumer economy and their poor results further support the argument about large-cap stocks to avoid.
|UPS||United Parcel Service||$171.04|
As anybody who has written about the investment sector can appreciate, mentioning anything negative about consumer electronics giant Apple (NASDAQ:AAPL) can be hazardous to your inbox. So, I’m going to weasel my way out of the criticism by proverbially throwing Michael Burry under the bus. You see, the trader from The Big Short has made yet another bold move, this time shorting AAPL stock.
Gaining fame and notoriety for betting against the housing bubble and profiting handsomely during the subprime mortgage crisis, Burry purchased put options against 206,000 Apple shares. Notably, he’s going head to head with the Oracle of Omaha himself, Warren Buffett, who purchased $600 million worth of AAPL stock last quarter.
So, who’s going to win in the battle of the titans? If I were a betting man, I’m going to go with Burry. From a technical perspective, AAPL is one of the large-cap stocks to avoid, shedding 24% of its market value on a year-to-date basis. Fundamentally, rising inflation poses huge restrictions on discretionary purchases, making AAPL less credible in 2022.
Another publicly traded security that arouses intense loyalty among its fans, Tesla (NASDAQ:TSLA) — the house that revered entrepreneur Elon Musk built (or at least that’s the popular narrative) — is currently suffering from un-Tesla like volatility. On the recent May 18 session, TSLA imploded by a magnitude of nearly 7%. If that wasn’t worrying enough, shares are down almost 44% YTD.
So, from a technical perspective, Tesla is one of the large-cap stocks to avoid. But doesn’t that make it a compelling discount? After all, electric vehicles are the future. Moreover, Tesla commands brand cachet that will be difficult — some might say impossible — to usurp.
Well, for starters, the aforementioned cachet will be put to the test with several premium EV startups poised to challenge Tesla’s throne. On a broader level, though, it’s possible that Tesla has already reached peak sales under the present paradigm. Simply put, EVs remain out of the reach of many households and rising inflation will exacerbate this challenge.
Tesla can come back from the malaise but I’d probably wait for a better signal.
Meta Platforms (FB)
I’m torn about Meta Platforms (NASDAQ:FB) because its core Facebook business is social media done right (or right-ish). True, the social network has courted more than its fair share of controversies. However, the scope of influence is unprecedented and Facebook offers a utilitarian profile that competing platforms lack. Arguably, this is the main reason why Facebook’s age demographics are more evenly distributed and less peaky than its rivals.
But the thing is, we must set aside our personal feelings about our prospective investments and recognize when certain initiatives are simply not working. The fact that FB has suffered a 43% decline YTD and is down 40% over the trailing year may be enough for some folks to put it in a list of large-cap stocks to avoid.
Another issue that works against Meta Platforms is its transition to the metaverse. Personally, I’ve joined the chorus of critics that say the innovation is overhyped. In a world of shortened attention spans, it’s possible that Meta is betting big on a passing fad. Therefore, you might want to stay away.
In the rough and tumble world of Wall Street boardrooms, cynical thinking dominates. Therefore, more than one high-profile investor likely thought that the damage done to Disney (NYSE:DIS) should bode well for rival Comcast (NASDAQ:CMCSA). The enemy of my enemy is my friend and all that jazz.
Unfortunately in some cases, the enemy of my enemy is still my enemy. While CMCSA is “only” down 17% YTD — compared to the awful 34% YTD loss for DIS — it’s not much of a consolation. Further, while the political winds don’t favor Disney due to its stance on certain issues, let’s not forget that Comcast isn’t exactly winning over hearts and minds.
Fundamentally, the media and entertainment giant appears to be running out of ideas to distinguish itself in a crowded field. For instance, a few weeks ago, CMCSA slumped due to slowing broadband subscriber growth. Further, it might lack the legs to be truly competitive in the content front. There are only so many sequels and spinoffs of the Fast and Furious franchise that you can milk before consumers get tired of it.
One of the most powerful consumer brands in the world, Nike (NYSE:NKE) benefitted handsomely from the new normal. With millions of corporate employees forced to work from home to mitigate the wider impact of the coronavirus, office wear was out and casual attire was in. Well, nothing spells casual — with a splash of sophistication — than Nike.
However, it’s quite possible that work from home may soon come to an end. Some managers have expressed frustration with the lack of accountability that telecommuting can at times engender. While most worker bees are not happy about getting recalled to the office, here’s the thing: with layoffs increasing due to recessionary pressures, not going back to the office can make one stand out for all the wrong reasons.
If this scenario plays out at scale, we’ll see a pivot in consumer habits: out with casual wear, in with office-acceptable attire. Factor in rising inflation and it’s not difficult to understand why NKE is one of the large-cap stocks to avoid: the negativity in the charts is confirming the pessimistic pivot in the consumer economy.
United Parcel Service (UPS)
When Amazon (NASDAQ:AMZN) sparked the e-commerce revolution, United Parcel Service (NYSE:UPS) was a go-to recipient of downwind benefits. Indeed, the more widgets and gadgets that Amazon sold, the busier UPS was delivering them to households across America. It was a beautiful relationship until Amazon had the grand idea of shipping its own products.
With Amazon’s Prime delivery service, the e-commerce giant is further competing with UPS and rival FedEx (NYSE:FDX), arguably another name among large-cap stocks to avoid. Anecdotally, Amazon-branded couriers have become rather ubiquitous. And if you think about it, each sighting represents a loss of market share for UPS and its ilk.
But perhaps the bigger issue with UPS is that Covid-19-related spike in e-commerce transactions was relatively short-lived. According to data from the U.S. Census Bureau, e-commerce as a percentage of all retail sales peaked in the second quarter of 2020 at 15.7% Since then, this metric has steadily declined, with the most recent count in Q4 2021 sitting at 12.9%.
Frankly, that’s not helpful at all for UPS stock.
A cloud-based software company specializing in customer relationship management (CRM) platforms, Salesforce (NYSE:CRM) is one of the biggest success stories in the technology realm, demonstrating the power of wagering on a great idea before the big wave hits. But now that this wave has already materialized, investors may want to consider an exit plan.
On a YTD basis, CRM stock has lost over 38% of market value. Over the trailing six months, it has tanked nearly 46%. Since 2018, CRM looks like it is charting a bearish broadening wedge formation, which implies that following a dead-cat bounce, the equity unit is liable to even more sharply. Problematically, the fundamentals don’t provide much encouragement for stakeholders.
Although Salesforce and cloud computing are relevant, the pressing issue is that a combination of high inflation, rising interest rates and brewing fears of a recession could impact the company’s clients in terms of software spending. That would then trickle back up to Salesforce, forcing the software provider to lean out its own operations.
It’s just not a great look, making CRM one of the large-cap stocks to avoid for now.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.