While the Dow Jones (^DJI) represents industry leaders, not every stock in the index is a safe bet. Some are facing headwinds like declining demand, rising costs, or disruptive new competitors.
Just because a company is in the Dow Jones doesn’t mean it’s a great investment, and StockStory is here to help you separate winners from laggards. That said, here are three Dow Jones stocks to avoid and some better opportunities instead.
3M (MMM)
Market Cap: $82.36 billion
Producers of the first asthma inhaler, 3M Company (NYSE: MMM) is a global conglomerate known for products in industries like healthcare, safety, electronics, and consumer goods.
Why Should You Sell MMM?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Anticipated sales growth of 3% for the next year implies demand will be shaky
- Earnings per share have contracted by 2.3% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
At $158.58 per share, 3M trades at 18.1x forward P/E. Read our free research report to see why you should think twice about including MMM in your portfolio.
Cisco (CSCO)
Market Cap: $480.2 billion
Founded in 1984 by a husband and wife team who wanted computers at Stanford to talk to computers at UC Berkeley, Cisco (NASDAQ: CSCO) designs and sells networking equipment, security solutions, and collaboration tools that help businesses connect their systems and secure their digital operations.
Why Does CSCO Give Us Pause?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 4.5% for the last five years
- 6.9 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Diminishing returns on capital suggest its earlier profit pools are drying up
Cisco is trading at $121.20 per share, or 25.9x forward P/E. To fully understand why you should be careful with CSCO, check out our full research report (it’s free).
Goldman Sachs (GS)
Market Cap: $317.5 billion
Founded in 1869 as a small commercial paper business in New York City, Goldman Sachs (NYSE: GS) is a global financial institution that provides investment banking, securities, asset management, and consumer banking services to corporations, governments, and individuals.
Why Are We Hesitant About GS?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 2.5% for the last five years
- Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 3.1% annually
- Sizable asset base leads to capital growth challenges as its 5.9% annual tangible book value per share increases over the last two years fell short of other financials companies
Goldman Sachs’s stock price of $1,063 implies a valuation ratio of 17.3x forward P/E. Dive into our free research report to see why there are better opportunities than GS.
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