Investors often look to the Dow Jones Industrial Average for stocks that have stable profits, global exposure, universally recognized brands, and a general level of safety. But this hardly means that Dow stocks can’t fall. While several are in strong uptrends, such as Disney (NYSE:DIS) and Exxon Mobil (NYSE:XOM), others are not.
The stocks I mention below appear to have made intermediate tops, and this means that the “smart money” is selling them on rallies before they can reach their recent peaks. Investors who own shares in these companies need to reevaluate their investment theses in light of this, or at the very least they need to ask themselves what it is that they think they know that sellers don’t.
1. General Electric (NYSE:GE)
General Electric is one of the pillars of the Dow, with a universally recognized brand and a reputation for manufacturing quality products. However, in 2008, investors forgot about these aspects of GE and focused on just one segment of this conglomerate: GE Capital. This one segment wound up almost destroying the company. But while the company has tried to emphasize its other segments, the fact remains that General Electric is in large part a financial stock, and financials are not in favor at the moment. If we consider that industrials are also out of favor, we can see why the company’s shares have failed to surpass their December peak.
The company’s earnings have followed suit, with a sizable double-digit decline in the first quarter. Meanwhile the company remains highly leveraged thanks to its finance business. Still, the shares trade at over 18 times earnings despite the fact that investors are paying about two-thirds of that for financials. With declining earnings and exposure to out-of-favor sectors, GE continues to be vulnerable to the downside, and for this reason I think the stock will continue to roll over.