Investors typically turn to blue-chip stocks for safe investments that provide safe returns through higher-than-average dividends. Some blue-chip stocks are top-rated and among the world’s most well-known companies. However, their stock prices can sometimes become overinflated despite less-than-ideal performances.
While these three blue-chip stocks have seen success in the past, they’re underperforming right now due. Reasons are due to high interest rates and poor management decisions. It may be time to let them go. One bad earnings report doesn’t mean the end of the world, especially for blue-chip stocks. But it is hard to explain or see a turnaround in the near future.
Let’s examine these companies’ most recent earnings and the difficulties they face. We will also look at the underlying reasons that concern the future of these blue-chip stocks.
Hershey (HSY)
One of the most famous chocolate companies ever, Hershey (NYSE:HSY), has been a top blue-chip stock for a long time. Many investors have found a safe investment with Hershey and enjoyed its stable growth for many years. However, after the end of last year, when the company reported a weak outlook for 2024, the stock began to drop.
Despite an earnings beat in Hershey’s most recent earnings report, investors are becoming concerned about the disappointingly flat guidance for 2024. Hershey’s outlook for this year includes only a 2% to 3% increase in net sales with a flat 0% increase in earnings per share.
This flat guidance is especially concerning because of quickly rising prices of cocoa, one of Hershey’s primary commodities. Cocoa has already more than doubled in price per kilogram this year. While Hershey would have to see a considerable jump in sales and revenue to successfully combat the inflating prices of cocoa, flat guidance likely means a further drop in share price.
Hershey is by no means a bad stock. However, given the difficulties the company will face in the foreseeable future, it may be better to sell and get out ahead of any Friday drops in value and income.
Starbucks (SBUX)
Starbucks (NASDAQ:SBUX) has been one of the most prominent coffee retailers for several years. Due to its continued success and massive market share in the global coffee market, Starbucks has been a top blue-chip stock in its time.
However, so far this year, the stock has seen difficulties. And while management is trying to fix the company’s problems, they may not be taking the right approach. Starbucks’s Q2 earnings report shook the world. Global comparable store sales declined by 4%, and net revenue decreased by 2%.
A long-term problem for Starbucks has been the relatively high price of the menu items. In fact, its most recent earnings report reflects this business model’s conflict with the modern consumer. The report included a 4% increase in the average ticket and a 7% decrease in the number of transactions In the U.S.
Management’s solution to this problem is to lower prices through exclusive deals offered on the mobile app. While this may appeal to customers unwilling to spend as much, it could decrease product availability and negatively affect the number of transactions in too-busy stores.
With lower prices and potentially fewer transactions overall as a result of this move, it is difficult to imagine Starbucks overcoming declining sales in the near future. Although this historic blue-chip stock is priced cheaper than ever, the price will likely move down.
McDonald’s (MCD)
McDonald’s (NYSE:MCD) has been a top blue-chip stock for almost as long as the stock has been traded. The fast food giant is adapting well to current economic conditions and has proven its resiliency to inflation with successful price hikes in recent years.
The proportional price increase has kept McDonald’s alive in this inflated economy—at least until now. McDonald’s most recent earnings report gives investors reason to worry that prices are becoming too high to appeal to consumers’ limited spending power. Adjusted earnings per share missed analyst estimates, while global comparable store sales only grew 3.4%.
McDonald’s has maintained steady sales growth for over 10 years. But this most recent slowdown may invoke concern. While MCD sales slow, rising inflation does not. The likely decline for McDonald’s in the near future is the now unreasonable, extremely high stock valuation.
With these factors in mind, McDonald’s is overvalued. Therefore, it may not be worth holding until it finds an alternative method to overcome economic pressure.
On the date of publication, Joel Lim 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.