When blue chips get too popular – like the five I’m going to
show you today – these “safe stocks” can actually be dangerous to continue
holding in your portfolio.
The problem with blue-chip stocks? Call it the “Curse of the
Dow.” The Curse says a stock that joins the Dow Jones Industrial Average will
essentially hit a wall, underperforming in the ensuing months compared to how
it performed before ascension. It’s not perfect, but it’s close – since 1999,
15 of 16 stocks that have joined the Dow have averaged 1% gains over the next
six months, but averaged 11% gains in the six months before inclusion.
Why? There are a few factors, but one of the most prevailing
is that by the point a stock has joined the Dow, it’s typically nearing the end
of its growth ramp and reaching the slower-growth “mature” part of the business
cycle.
The same reasoning can be applied to many blue-chip stocks.
A stock typically starts to be considered a blue chip after a long period of
sustained growth, even if that growth begins to slow – and after that, a
company never really loses the blue chip designation as long as the business
doesn’t crumble.
The following five stocks are the worst kind of blue chips.
They’re not crumbling, but it’d be better if they were -- because then the decision
to leave them would be far more obvious. Instead, these large-caps tantalize
investors with their stability and slightly above-average dividends, keeping
investors just long enough to weigh them down with underperformance.
Make no mistake: Keeping your money invested in these
blue-chip losers is a sure way to set your retirement plans back.
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