In the realm of the financial markets there is the words “blue chips”, basically those are the big players on the stock market, company’s that the masses think they will last forever and when in a conversation someone mentioned blue-chips everybody start diving in explanations about how they will grow-up or expand their dividends payout.. Essentially those things are true, but sadly not every-time they are correct. Why I am telling you that ? Most of the time’s those particular company’s so-called blue-chips are overvalued, because of the reputation they have build in the past years. The reason is that many of these stocks are not merely overvalued, but insanely overvalued. In some cases, they even have systemic problems that nobody pays attention to because they are “blue chips.”
Here are some blue-chips names that I will suggest to pay close attention to they’re outperforming this quarter and not only..
Procter & Gamble Co
Revenue has been stagnant and declining, net earnings has gone nowhere for years and the company spends free cash flow buying back stock that is vastly overpriced.
With a $236 billion market cap, it trades at about 24x earnings on no earnings growth. This is a perfect example of “insanely overpriced,” and you can get twice the 3% yield in preferred stocks with less risk.
Wal-Mart Stores, Inc.
Of course, with almost $15 billion in net income, that’s not likely to occur for some time.
The problem with WMT stock is the same thing that plagues PG stock. The business is fine but it isn’t growing. Investors pay for growth, and if they aren’t getting growth, then you better be giving them a competitive dividend. WMT trades at 15x earnings on zero growth … which might be reasonable were the dividend about twice the current 2.9%.
International Business Machines Corp.
IBM is another classic example of a company that was once at the top of the blue chips universe, only for it to become an increasingly irrelevant operation. Revenue fell $11 billion (12%) in fiscal year 2015. Operating income is falling. Net income fell over 20% in just two years. IBM stock is down nearly 20% over the past five years, and when you add the dividend (now at 3.6%) back in, those investors are still underwater.
eBay Inc.
Ebay was once a pioneer in the world of the internet and the first iteration of the “sharing economy,” acting as the middleman for a flea market.
However, it evolved into a home for collectors and the gray market, and when Amazon started offering used goods, its days were numbered.
J. Mason ♦
Wealth is a Mindset . . 