Beware! 3 Dow Stocks Waving Massive Red Flags Right Now

Stocks to sell

The Dow Jones Industrial Average has a lengthy history. Charles Dow created the index in 1896 and introduced it in the Wall Street Journal. The original index tracked 12 companies, but the current Dow Jones Industrial Average tracks 30 companies. Inside this index, this has led to the emergence of DOW stocks to sell.

This index contains 30 large-cap U.S. companies. This level of diversification can minimize your risk and lead to compounding returns. That sounds good, but returns aren’t guaranteed.

Let’s be honest about the Dow Jones Industrial Average. Some of the stocks in that index are better than others. While some stocks can deliver exceptional returns, other Dow stocks have several red flags. Past returns don’t matter when you’re jumping into a new investment for the first time.

Investors may want to be wary of these three Dow stocks. They have several red flags that can become problematic for new investors.

Nike (NKE)

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Nike (NYSE:NKE) is an iconic athletic footwear company that generates billions of dollars in annual profits. The company has been around for over 50 years. Many investors flock to brands they are familiar with, but Nike presents several concerns.

The stock trades at a 30 P/E ratio despite year-over-year net income losses and decelerating revenue growth. In the fourth fiscal quarter of 2023, Nike reported 5% year-over-year revenue growth and a 28% year-over-year decline in net income.

The increasing lack of accountability against crime and theft has been damaging the company’s bottom line. Nike recently announced it would permanently shut down one of its top stores in Portland, Oregon.

Retail shrink, the term used to describe losses of inventory due to crime and other factors, is a serious problem. Whether Nike loses $200,000 from thieves or $7 million of Nike products get stolen (the police found these products in a warehouse and caught the thieves), it’s not a good look for the retailer. This makes it one of those DOW stocks to sell.

Worsening macroeconomics and a lack of consequences are two potent tailwinds for higher retail crime. Combine that with the company’s inventory glut, and it’s no wonder this stock went from a must-own to an asset that has only gained 15% over the past five years.

Disney (DIS)

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Disney (NYSE:DIS) shares have lost their magic. The stock is down by 6% year-to-date and has fallen by 23% over the past five years. Disney commanded a higher stock price in July 2014 than it does right now, indicating the company’s fall from grace.

Disney had solid growth in the first half of the 2010s, as acquisitions allowed the corporation to tap into classic intellectual properties like Marvel and Star Wars. However, movies and streaming series for these intellectual properties haven’t performed as well lately. The Star Wars Hotel had to close within two years, and Marvel has received criticisms for significant quality declines.

Disney is running out of iconic intellectual properties to acquire, and its push to recreate classics with a political twist has resulted in several flops. Bloated budgets only made matters worse and have resulted in almost $2 billion in box office losses over the past 15 months.

Disney+ has also turned out to be a bust. While the streaming service has over 100 million subscribers, the platform is shrinking and loses billions of dollars each year. The stock does not look attractive at its current levels, and the company is running out of magic for the franchises it acquired. All in all, it’s one of those DOW stocks to sell.

Home Depot (HD)

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Home Depot (NYSE:HD) shares have gained 3% year-to-date and are up by 56% over the past five years. The company has a more reasonable 20 P/E ratio and even comes with a 2.60% dividend yield.

However, macroeconomic headwinds have meaningfully impacted Home Depot’s finances. The home improvement retailer reported a 2.0% decrease in revenue in the second quarter. Net income dropped by 9.9% year-over-year.

Just like Nike, Home Depot is also a victim of rising crime. Product theft was a key catalyst that trimmed eight basis points from the company’s gross margin year-over-year. The return of student loan payments, rising interest rates, and rising inflation can make Home Depot less feasible for consumers.

Home Depot is a solid name during bullish markets, but a real estate crash can create trouble for the company. Investors may want to stay on the sidelines for the time being and wait to see how this one unfolds.

On the date of publication, Marc Guberti 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.

Marc Guberti is a finance freelance writer at InvestorPlace.com who hosts the Breakthrough Success Podcast. He has contributed to several publications, including the U.S. News & World Report, Benzinga, and Joy Wallet.

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