Many stocks have enjoyed an end-of-the-year rally after enduring some summer hardships. The Dow Jones is approaching the all-time high from its November 2021 record and may even exceed that level by the end of the year.
However, not every stock in the Dow Jones is contributing to the index’s long-term growth. Some stocks have overextended themselves and may be vulnerable to future sell-offs. These three stocks have shaky business models and currently are not the best places to store your money.
Verizon (VZ)
The main selling point for Verizon (NYSE:VZ) stock is its high dividend yield. A 7% dividend yield is hard to resist. Verizon gives out qualified dividends which makes it more enticing than real estate investment trusts and business development companies. Those two business structures offer non-qualified dividends which increase your ordinary income.
However, investors won’t see a captivating picture if they look beyond the dividend yield. Dividend growth has come to a screeching halt and averages roughly 2% annual growth. Shares have steadily declined and have lost roughly one-third of their value over the past five years.
VZ stock has jumped by over 20% after posting earnings. The rally is a better reflection of the degree to which investors have dumped the stock in the weeks leading up to earnings. Verizon reported small year-over-year (YOY) declines in revenue and net income. Although the losses are relatively low, it shouldn’t encourage long-term investors.
Verizon has a low P/E ratio slightly below 8 for now. However, a low P/E ratio does not guarantee that a stock is a solid choice. In fact, Verizon’s recent financials suggest investors may benefit from putting their money elsewhere.
Disney (DIS)
A recent rally has brought Disney (NYSE:DIS) stock back in the green year to date (YTD). However, shares are down by roughly 17% over the past five years.
Recently, Disney’s profits from many surefire movies have dried up. The company could regularly profit off of new releases for brands like Marvel and Star Wars. However, those days appear to be gone with a challenging roadmap for reclaiming that level of success.
It’s easy to see the reason the stock is floundering. CEO Bob Iger recently admitted to it on CNBC, stating that the company has focused too much on messaging rather than offering entertaining movies. This approach has attracted many critics, including one who can uproot Disney’s leadership.
Also, activist investor Nelson Peltz is creating more turbulence in the company. His efforts contributed to the company’s massive reduction in its streaming expenses. Disney’s leadership has been more on their toes to stay on investors’ good sides as Peltz’s activist campaign continues. However, Disney+ still lost the company $420 million in the September quarter.
Nike (NKE)
Nike’s (NYSE:NKE) stock has been up by roughly 30% since the end of September. The rally brings Nike to 2% YTD. The company reduced its inventory but didn’t deliver impressive financials in the most recent quarter.
Nike opened fiscal 2024 with 2% YOY revenue growth and a 1% YOY drop in net income. It’s done a good job at raising its dividend and recently bumped it by 9% YOY. It marks the 22nd consecutive year of dividend hikes.
Nike’s price-to-earnings (P/E) ratio is approaching 36 which seems a bit too high for a company with declining net income and decelerating revenue growth. The company’s commitment to respectable YOY dividend growth provides a good sign for long-term investors. However, investors can find more attractive choices that have more reasonable valuations.
Other sneaker and athletic apparel companies like Skechers (NYSE:SKX), Adidas (OTCMKTS:ADDDF), and Lululemon (NASDAQ:LULU) have comfortably outperformed Nike YTD and over the past five years. Actually, investors may want to pick up those stocks instead of Nike.
On the date of publication, Marc Guberti 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.
