Ticking Time Bombs: 3 Blue-Chip Stocks to Dump Before the Damage Is Done

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Josh Enomoto

Thu, Sep 28, 2023, 6:34 PM 4 min read

While it’s an uncomfortable topic, investors need to get serious about certain blue-chip stocks to sell. As some of the biggest and most popular enterprises, the blue chips don’t inherently seem a place to look for red flags. However, as the bankruptcy of Hertz (NASDAQ:HTZ) during the Covid-19 pandemic proved, even the alpha dogs can suffer devastating blows.

Further, while being an industry giant affords privileges such as a track record and a framework of stability, none of these factors guarantee sustained success. The harsh reality is that the industry can change or consumer habits can evolve, leaving once-storied blue-chip stocks lurching.

Now, I’m not about to present a complete doom-and-gloom narrative for the below enterprises. However, it’s also time to address some harsh realities. Here are the blue-chip stocks to sell (or at least to consider doing so).

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Blue-Chip Stocks: Nordstrom (JWN)

A Nordstrom (JWN) storefront in Toronto, Canada.

Source: Jonathan Weiss / Shutterstock.com

Probably one of the blue-chip stocks to sell that’s likely not catching anyone by surprise, luxury department store stalwart Nordstrom (NYSE:JWN) faces significant challenges. It’s not just that shares are down more than 10% this year, although that’s a serious concern. After all, the benchmark S&P 500 index gained nearly 12% during the same period. Rather, broader dynamics don’t bode well for JWN.

With factors such as stubbornly high inflation, mass layoffs and record-breaking credit-card debt converging, fewer people have discretionary funds available. Even if they did, the smart thing to do amid all these problems is to save as much money as possible. If a recession materializes, it’s unlikely that the majority of the workforce will go unscathed.

Not surprisingly, the options market has seen some bearish trades. Notably, on Sept. 11, a trader (or traders) bought 3,006 contracts of the Jan 19 ’24 12.50 Put, which seems an aggressively bearish bet. The premium paid for this transaction was $270,000. Also, analysts peg JWN a moderate sell, with only one analyst seeing it as a buy.

Campbell Soup (CPB)

A variety of Campbell's soups in a grocery store. CPB stock.

Source: Sheila Fitzgerald / Shutterstock

At first glance, Campbell Soup (NYSE:CPB) doesn’t seem like a natural candidate for blue-chip stocks to sell. As a food producer – and an iconic one at that – Campbell should theoretically perform well during this cycle of ambiguity. After all, everyone needs to eat, with the company providing a cheap but tasty means of feeding this core demand.

Unfortunately, investors simply have other ideas. Since the beginning of the year, CPB gave up more than 26% of equity value. Part of that centers on the harsh consumer economy. In June, CPB slumped due to shoppers pulling back because of price hikes. Put another way, the trade-down effect has reared its ugly head against the canned soup maker.

To be fair, a major transactions involving bought calls that expire January next year suggests some optimism. However, a main issue with Campbell now is its balance sheet. With a cash-to-debt ratio sitting at only 0.04x, sustainability woes linger. Also, analysts peg CPB a moderate sell. Conspicuously, among 13 experts, not a single one assigned it a buy rating.

T. Rowe Price (TROW)

T row price (TROW) logo magnified through a lens while displayed on a web browser

Source: Pavel Kapysh / Shutterstock.com

Although T. Rowe Price (NASDAQ:TROW) offers a contrarian angle, the global investment management firm may be best left as one of the blue-chip stocks to avoid. Since the start of the year, TROW lost a bit more than 5% of equity value. In the trailing five years, it’s also down 5%. The problem is that the surge of meme traders has faded, leaving TROW look rather irrelevant.

Of course, the contrarian might pop in and say that the best time to be in the market is during a bearish cycle. While that may be true, you must also consider the other side. During downturns, people lose their jobs. So, the idea of collecting massive profits due to short speculation has a clear constraint. To be fair, implied volatility (IV) for TROW options peaks at 73% for far out-the-money (OTM) calls. However, the IV peaks at 71% for far OTM puts, which means that traders may be hedging for downside risk.

Finally, analysts rate TROW a moderate sell. Also, the average price target is only $104.20, implying less than 1% upside.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.