3 Dow Stocks You Should Be Selling

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Source: Thinkstock

Source: Thinkstock

While the Dow Jones is trading within 2 percent of its all-time high, there are some components that have been relatively weak. Not only have they been trending downwards, but they seem to have deteriorating fundamentals. In this article I have singled out three Dow components that I believe have downside risk. The fact that they are members of the most famous market index in the world doesn’t preclude them from being overvalued, and from declining earnings and revenues. Investors are therefore encouraged to sell their positions in these companies.

1. Procter & Gamble (NYSE:PG)

This is a stock that is often cited as one of the best stable investments for conservative long term investors. It pays a 3.2 percent dividend that rises every year like clockwork, and management is perpetually buying back stock. However the company’s revenue growth over the past few years has been essentially non-existent. And it gets worse — high input costs and increased competition in the consumer products space means that the company’s margins are being compressed. While share repurchases have somewhat masked earnings declines on a per-share basis over the past several years the company’s net income has fallen from $12.7 billion to $11.3 billion.

Despite this lackluster performance the company trades at 22-times earnings. While this is essentially in line with the S&P 500 keep in mind that the S&P 500 has been growing earnings per share in the aggregate over the past several years. Procter & Gamble’s reputation has elevated the valuation, but there is little else to justify paying $81.50 per share for the company, and I think now is a good time to sell.

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