As the market hits new peaks, it’s easy to get swept up in the euphoria that surrounds blue-chip stocks. These bastions of the financial world are often seen as safe havens, reliable performers with a proven track record. However, not all blue-chips are created equal, and some are facing headwinds that could lead to a notable decline.
Investors often hold onto blue-chip stocks for their stability and consistent dividend payouts, but these same companies can sometimes harbor unseen risks—be it from outdated business models, failure to adapt to technological advancements, or overexposure to volatile markets. The signs of trouble aren’t always immediate, but shifts in consumer behavior, regulatory changes, and financial underperformance can quickly turn a market leader into a laggard.
Thus, while it might be tempting to “buy and hold” these traditional powerhouses, discerning investors should consider whether it’s time to divest from certain blue-chips that are poised for a downturn. As July ends, here are three blue-chip stocks you might want to reassess to safeguard your investments against potential declines.
Exxon (XOM)
Exxon (NYSE:XOM) is a stalwart in the oil industry. However, the company is currently navigating a challenging phase marked by fluctuating oil prices and evolving global energy demands. The company’s stock has seen significant volatility, reflective of broader market trends and geopolitical tensions that have influenced oil production and pricing.
The oil industry is currently experiencing significant volatility, particularly with the recent production cuts announced by OPEC+ members, including Russia. These cuts have led to a downward revision of oil production forecasts.
For Exxon, the implications of these cuts are twofold. First, there’s the immediate impact on the global supply of oil, which can lead to fluctuating oil prices and affect Exxon’s profitability. Secondly, the long-term outlook suggests a potential oversupply scenario as restrictions ease, which could lead to further price volatility.
Exxon is also under increasing scrutiny from environmental regulations and the global shift towards renewable energy sources. The company’s long-term sustainability initiatives, including ventures into carbon capture and storage and cleaner energy solutions, are still in nascent stages and not yet sufficient to offset the challenges posed by its traditional oil and gas operations.
Intel (INTC)
Intel (NASDAQ:INTC) has continued to provide negative returns to investors in recent times. Despite being a historic leader in the semiconductor industry, recent developments and strategic missteps have positioned Intel unfavorably against its competitors.
Intel’s dominance in the CPU market is waning, with significant losses to competitors like AMD and emerging threats from ARM-based architectures. AMD’s market share in server and high-performance CPUs continues to grow, powered by their more efficient and powerful chip designs. This shift is critical as it represents a loss of market in Intel’s traditionally strong segments, where it enjoyed higher profit margins and significant market control.
Intel’s ambitious IDM 2.0 strategy is aimed to revitalize its manufacturing capabilities and regain industry leadership. However, the execution has been fraught with delays, cost overruns, and lower-than-anticipated returns.
Projects intended to catapult Intel back to the forefront of the semiconductor industry have instead become financial sinkholes, with the company reporting increasing operational losses in its latest quarters.
3M (MMM)
3M (NYSE:MMM) has faced several challenges lately, including slowing growth and legal issues. The company faces a difficult landscape that could influence its trajectory significantly.
3M’s growth has been lackluster in recent years. The company reported 0.8% organic revenue growth in Q1 of 2024. For the full year 2023, the company saw -3.2% organic revenue growth and -10.2% adjusted operating profit growth. These figures reflect a company struggling to maintain its market position amid fierce competition and changing market dynamics.
Moreover, 3M has been embroiled in major litigation issues that have affected not only its financials but also its market reputation. The settlement of the Combat Arms Earplugs litigation has cost the company $6 billion. Additionally, 3M is expected to pay at least $10.3 billion to settle lawsuits related to the contamination of U.S. public drinking water systems with harmful chemicals.
While 3M is taking steps to streamline operations and potentially rejuvenate its business with the spin-off of its healthcare segment, the road ahead is fraught with challenges for the company.
On the date of publication, Mohammed Saqib did not hold (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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.