It’s important to be aware of the blue-chip stocks to avoid as we come to the end of the first-quarter earnings season, and cracks emerge in certain companies. Retailers, in particular, are struggling as inflation-battered consumers pull back their spending with interest rates elevated. Several prominent retailers posted mixed Q1 financial results and gave a downbeat forecast for the remainder of the year as they struggled with a slowdown in consumer spending.
The latest reading from the U.S. Commerce Department showed that retail sales in April were flat as higher gasoline prices pulled consumer spending away from goods and discretionary items and towards essentials such as fuel and rent payments. Analysts say this shows that consumer spending is losing momentum, a situation that is likely to negatively impact many notable blue-chip companies and their stocks in the coming months.
Here are the titans on tilt: three blue-chip stocks to avoid as cracks emerge.
Blue-Chip Stocks to Avoid: Lululemon (LULU)
It’s official. Athletic apparel company Lululemon (NASDAQ:LULU) is the worst-performing stock in the benchmark S&P 500 index. The company’s stock is currently listed last in terms of performance this year among 503 stocks that comprise the main U.S. index. Having declined 40% so far in 2024, Lululemon’s stock has dropped below other laggards such as Tesla (NASDAQ:TSLA), Intel (NASDAQ:INTC) and Boeing Co. (NYSE:BA).
The decline comes after Lululemon issued financial results, including weak forward guidance and signs of slowing sales. The stock slid 10% recently after Chief Product Officer Sun Choe left the company. Investors and analysts are concerned about the company’s outlook, citing soft sales and rising competition. LULU stock currently retains a consensus “moderate-buy” rating among 22 professional analysts. Through 12 months, Lululemon’s stock is down 10%.
Deere & Co. (DE)
The stock of Deere & Co. (NYSE:DE) is down 7% this year as the makers of farm equipment and lawnmowers have lowered their guidance for the remainder of 2024. The Illinois-based company, known for its distinctive yellow and green machinery that’s sold under the “John Deere” brand, dropped its full-year guidance for net income to $7 billion from a previous range of $7.5 billion to $7.75 billion. Management said they’re struggling with declining agriculture prices.
Corn prices have fallen 22% over the last 12 months, while soybean prices have decreased 13%. During their last earnings call, Deere & Co. executives said lower crop prices mean less revenue for farmers and less money for machinery purchases such as tractors and hay balers. This is bad news for the company’s near-term sales. DE stock is up 6% over the past 12 months, trailing the 26% gain in the S&P 500 over the same period.
Target (TGT)
Discount retailer Target (NYSE:TGT) continues to struggle as consumers reign in their discretionary spending due to high interest rates. The company’s stock fell 10% after it posted mixed financial results for this year’s first quarter. EPS of $2.03 missed the consensus forecast of $2.06 among analysts. It was the first time since November 2022 that Target missed its profit estimate.
Revenue totaled $24.53 billion, compared to the $24.52 billion anticipated on Wall Street. Target’s sales were down 3% from a year ago. Customer traffic, which includes online and in-store shopping, fell 1.9% in Q1, while same-store sales decreased 3.7%. Shoppers bought fewer discretionary items, such as apparel and products for the home. The company has subsequently cut prices on thousands of items it sells, such as milk and running shoes. It’s not clear if the price cuts will turnaround the business.
TGT stock is up only 1% this year compared to a 12% increase in the S&P 500 index.
On the date of publication, Joel Baglole 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.