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Blue chips are usually solid buys. They might not be the most exciting stocks, but they’re household names and have been around the block.
Blue chip equals safe, right?
But sometimes blue chips struggle and become the kind of investments that investors should avoid at all costs. The kind of investments that do damage to the investors who insist on owning them.
Here are two blue chips investors should steer clear of right now.
General Electric (NYSE: GE)
Formerly a beacon of American industrialism, the once mighty General Electric (NYSE: GE) has fallen from grace.
The stock is down -57.45% in the last twelve months, was kicked off the Dow Jones Industrial Average (DJIA) in June, and has become unownable as the company has been in the midst of a multi-year turnaround that never really seems to pay off.
JPMorgan Chase analyst Stephen Tusa recently lowered his price target for GE to $6 saying, “While the stock is down ~70% from the peak of $30, this move still does not sufficiently reflect the fundamental facts, in our view.” Ouch.
It’s possible the company’s turnaround efforts will one day prove to be successful, and it is certainly true that the company can be salvaged. But as the market wonders what could go wrong for this stock next, now is the time to steer clear of GE.
Facebook (NASDAQ: FB)
Ah, Facebook (NASDAQ: FB).
The company has had a rough year after several scandals have hit the stock and the company’s earnings.
As the stock was falling, investors started to wonder, “Are we at the bottom yet?” while also thinking the valuation looked much more reasonable at $175 than it had at $218.
Then FB continued to fall, and the stock is now trading at $132 – down nearly -25% year-to-date.
But what really makes me worry with FB is the institutional selling that’s happening. Fund managers rapidly sold the stock when it gapped below its 200-day moving average on July 26. That day saw 169.8 million FB shares traded, compared to the average daily volume of around 21 million shares. And then two more days like that happened, signaling more institutional selling as fund managers move to the sidelines until earnings improve.
Facebook could very well be nearing a bottom, but even if it does start to rally, I expect there will be pressure from investors who bought on the way down trying to break even, which won’t help matters.