Some stocks just aren’t worth the risk no matter how affordable the share price looks.
Plenty of well-known companies that have enjoyed dominant positions in the past now look tired. With competitive positions in decline, sales slumping, and stock prices dropping, these companies are best left out of a portfolio. While investors might be tempted to pick up distressed stocks on the cheap, that strategy can often backfire. These stocks continue to slide lower and lower with no guarantee of a reversal. The best strategy is to avoid some stocks altogether.
Let’s examine three such blue-chip stocks I wouldn’t touch with a 10-foot pole.
Lowe’s (LOW)
Consumer spending is softening and the housing market is in a funk due to high interest rates charged on home mortgages.
This is bad news for home improvement retailer Lowe’s (NYSE:LOW), whose most recent earnings print did not inspire confidence. LOW stock fell 5% immediately after the company lowered its full-year sales outlook and reported that its third-quarter revenue declined nearly 13% from a year earlier. Over the last 12 months, Lowe’s share price has dropped 1%.
Lowe’s said that it is experiencing a “greater-than-expected pullback” by consumers when it comes to spending on discretionary items and big-ticket purchases for the home. The company has struggled as consumer demand for home improvement projects wanes. Also, higher mortgage rates are cooling the housing market. Consequently, Lowe’s forecast a decline in comparable sales of 5% for the current fourth quarter. Further, this is much worse than a previous anticipated decline of 2%.
Starbucks (SBUX)
While the market enjoyed its best month of the year in November, coffee chain Starbucks (NASDAQ:SBUX) endured its worst month.
Between Nov. 16 and Dec. 5, SBUX stock decreased 11% as most of the major indices touched 52-week highs. The decline marked the longest losing streak on record for Starbucks’ stock. The reason for the downturn was a report that showed slowing sales data for the company. Thus, it prompted traders and investors to hit the “sell” button.
Of particular concern are Starbucks sales in China. The company has a large presence there, but the economy is sputtering. Back home in the U.S., Starbucks is continuing to manage labor strife. Workers at hundreds of Starbucks locations stateside walked off the job on the company’s annual “Red Cup” promotional day to protest working conditions. The Workers United union has been trying to organize Starbucks locations in the U.S. and currently represents 9,000 employees at nearly 360 stores.
Tesla (TSLA)
Next, Tesla (NASDAQ:TSLA) is recalling more than two million of its electric vehicles to fix a problem with the Autopilot system. Apparently the problem involves a defective system that’s supposed to ensure drivers remain alert when using the Autopilot feature. The company has said that it will send out a software update to fix the Autopilot problem. Shockingly, the recall covers nearly all of Tesla vehicles sold in the U.S. since it first launched the Autopilot feature back in 2015.
The recall comes after a two-year investigation by U.S. regulators into a series of crashes. These happened while the Tesla Autopilot system was engaged, some of which ended up causing fatalities. The recall is the latest blow to Tesla. Further, it continues to discount prices to sell it vehicles amid waning consumer demand. Also, the company faces a sharp drop in market share as it grapples with increasing competition from both start-up companies and established automakers.
While TSLA stock is up 115% in 2023, the rise comes after a punishing downturn in 2022. And, over the last six months, the automaker’s share price has fallen 10%, making it a blue-chip stock I wouldn’t touch with a 10-foot pole.
On the date of publication, Joel Baglole 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.
