Generally, people turn to large-cap stocks when the future looks uncertain. It’s almost cliche but has an element of truth to it. Large-cap stocks are generally more diversified, so if one part of the company’s portfolio gets hit, it has more to make up for it. And some even have counter-cyclical components, specifically for this purpose.
But that can get tricky, since focused companies usually are better at understanding the sector where they operate and can adjust to economic cycles. Either way, the point is being selective.
This is plainly illustrated in the stocks below. These seven large-cap stocks are in sectors that are struggling now, and probably for a while to come. Some of the stocks have unique situations that turn good stocks in good sectors into stocks to avoid.
Either way, steer clear of these stocks. To keep your portfolio moving in the right direction, adjust your strategy accordingly.
Large-Cap Stocks: Occidental Petroleum (OXY)
Occidental Petroleum (NYSE:OXY) has not been doing well recently. As a matter of fact, the stock just hit a 14-year low this week.
Much of the problem was its big buy of Anadarko Petroleum for $57 billion. At the time, it looked like a smart play on the domestic oil trend in the U.S. However, it’s now a very heavy albatross.
As we’ve sunk into a global recession — all save the U.S. for now — oil prices have been sinking. And if they’re not sinking, they’re certainly not rising. Even Saudi Arabia is talking about cutting production simply because there’s already a glut in the market.
And that’s not to mention the fact that OXY likely paid top dollar for Anadarko, which is looking worse and worse.
Don’t let its 8% dividend fool you. It’s likely to get cut soon anyway.
Schlumberger (NYSE:SLB) is the world’s largest oil services company. And after explaining why OXY is in such a pickle right now, it’s a pretty similar story for SLB.
If companies aren’t drilling, then they don’t need drilling equipment. When oil fields are slowing down or shutting down, they don’t need oil services. When exploration slows, which is the bread and butter of SLB’s business, the stock goes down.
To be fair, SLB stock is treading water year-to-date. And its solid 5.6% dividend puts it above water. However, the stock is off 31% in the past 12 months and the future of the industry doesn’t have a lot of sunshine.
This isn’t to say that this oil field legend is doomed. It’s just going through a rough patch. But there’s little point buying now when the trend still has more downside than upside. As I like to say, you couldn’t pay me enough to invest my family’s nest egg in any of these risky stocks. I prefer to invest in what I’ve dubbed “bulletproof stocks.”
Walgreens (NASDAQ:WBA) seemed like the stock that was ushering in the consumer-facing side of modern healthcare in the U.S. and the United Kingdom.
But things aren’t looking so rosy now.
It’s not that the sector is under a great deal of pressure. This is a stock and company-specific issue. It seems any company that touches Rite Aid (NYSE:RAD) properties withers.
WBA made a move for the entire company but was spurned by regulators. But it did acquire a portion of RAD shops. The hope was scaling up would bring more economies of scale and better margins. But it hasn’t worked out that way yet. And just this week WBA announced that it was exploring the idea of going private. This was a shock — and not a good one. The news sent the stock down further.
While most analysts don’t give the possibility much credence, it doesn’t help the stock, which is now off 13% year-to-date and 28% for the year.
Mylan (NASDAQ:MYL) manufactured its first pill in 1966. Today, it’s the second-largest generic drug manufacturers in the U.S.
Just this year, it purchased Pfizer’s (PFE) Upjohn unit that makes off-patent drugs. It has acquired a number of generic competitors over the years and continues its growth.
But this side of the pharmaceutical business isn’t what it used to be and growth by acquisition doesn’t necessarily boost margins.
Perhaps that was the logic in misclassifying its famous EpiPen so it could get some big bottom-line growth. But it was a lazy — and illegal — way to go about it, and now it has to pay the price with snowballing investigations, rising legal bills and growing numbers of analysts downgrading the stock.
This is a falling knife you don’t want to try catching.
FedEx (NYSE:FDX) is another mighty company that should be doing well in this expanding world of e-commerce. The problem is, the optimism got out ahead of the reality.
Now that FDX is a global logistics company, it is more sensitive to global trends. And as the world’s growth slows, so does FDX’s.
The other challenge is rising competition in both global and local markets. And in June of this year, FDX announced it wasn’t renewing its express delivery service contract with e-commerce giant Amazon (NASDAQ:AMZN).
Neither company walks away a winner in this decision and FDX has yet to announce a deal with another major retailer to fill the shoes of AMZN. But next-day delivery isn’t cheap, and it’s likely that FDX wasn’t expecting the massive business the holiday season brings to help its earnings or margins at the end of the day.
Including its 1.6% dividend, FDX stock is about even year-to-date, but it’s off 30% in the past year. And don’t expect much upside until it fills the gap in AMZN revenue. Rather than throwing your money away here, you’re much better off looking for stocks that exhibit the following characteristics:
- Strong dividend growth
- Stellar record of paying consistent dividends
- An above-average yield (against the S&P 500)
- Market-beating growth
Posco (NYSE:PKX) is one of the top four steelmakers in the world. While it’s based in South Korea, it also has joint operations in the U.S. with United States Steel (NYSE:X) in Pennsylvania and California.
The story in this sector is once again the global slowdown. If fewer people are buying plants and equipment, or cars or other durable goods (or goods in general), then steel production falls.
And when you’re one of the biggest steel producers in the world, you can’t keep your furnaces running if there’s no demand for output.
PKX is moving ahead with a lithium project in Argentina, but that isn’t anywhere near completion. It’s just good to know it’s looking at supplementing its core market.
Given the fact that global growth may remain slow for a while, there’s no point in bargain hunting at this point.
Deutsche Bank (DB)
Deutsche Bank (NYSE:DB) somehow remains the leading bank in Germany. And because of that, it’s one of the key lenders to the European Union.
Germany is known as the banker of Europe, given the fact that it’s the largest economy on the continent and as a key EU partner, it runs the finances. When Greece was teetering, it was Germany that underwrote the loans to bail it out.
But all that intertwined business has left it exposed on a number of levels to exploitation inside and outside the bank. It’s constantly embroiled in scandals and hidden losses.
It’s Europe’s version of too-big-to-fail bank. And since it has bankrolled the EU, it’s even harder to shut it down or break it apart.
Germany is now on the brink of recession and Europe isn’t doing much better, especially as Brexit remains an issue. This is no time to add this kind of risk to your portfolio.
To prepare for a shifting market, I suggest steps that every investor should take right now:
- Follow the money: Buy stocks that are seeing massive cash infusions.
- Protect your portfolio: Invest in market-beating stocks with my simple trick.
- Go risk-off: Strong fundamentals are more paramount than ever.
My stock-picking track record includes the following:
- 274% gain in semiconductor stock Nvidia (NASDAQ:NVDA)
- 134% gain in defensive plays
- 123% gain in a personnel service stock
To learn how to invest in this shifting market, and to receive my top stock picks, click here.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.