2024 has been a great year for AI stocks. But what about the conservative Blue Chip stocks? Well, its been a mixed bag.
Some safe stock stocks like Starbucks (SBUX) and Nike (NKE) have had a tough time navigating an envioronment where consumers are tight on cash.
Other stocks have performed magnificently — so well it may be time to take profits. Costco (COST) and Cintas (CTAS) fit this bill.
Here’s a handful of stocks I think investors should sell. Charts and tables are from this past quarter, and the prices have moved somewhat since then. 
Starbucks (SBUX) delivered disappointing performance last quarter that did not meet estimates. Profit growth was -8% last quarter and missed estimates of 11%. The reason? Sales were poor. Revenue was -2%, and missed estimates of 6%. This was primarily due to a 3% same-store sales decline in North America, driven by cautious consumer spending and severe weather, and an 11% same-store sales drop in China, which is still slowly recovering from the pandemic and facing heightened competition. Internal challenges such as order abandonment due to long wait times are hurting the customer experience.
As Jim Cramer put it, Starbucks is having trouble with flowthrough. Product unavailability, along with supply chain issues limiting the availability of popular items, also contributed to the weaker performance. Operating margins decreased to 12.8% from 14.3% from a year ago.
SBUX has a P/E of 21 this quarter and I think the stock is deserving of a 20 P/E.
Nike (NKE) stock dropped like a rock after the company reported earnings and cut profit estimates. Shares fell from $95 to $73 after the bad news, and there is still a long list of bad news in the last earnings call. Revenue fell 2% last quarter with management stating that this would have been even worse with revenue declining 10%. The company’s lifestyle business declined after several years of double-digit growth, and this offset gains in performance products. Nike Digital sales dropped 10% due to fewer website visitors, increased promotions, and weaker sales of popular shoes. In Greater China, physical locations had traffic declines of greater than 10%. Currency exchange issues worsened, further impacting revenue.
Nike had its Fiscal Year end last quarter, and the company made $3.95 in profits. So for this year, analysts now have $3.33 for profit estimates, which would be a year-over-year decline of 16%. This is no longer a growth stock.
My Fair Value P/E is 20, down from 28 last quarter.
Dollar General’s (DG) shrinkage or theft was worse than a year ago. In the earnings call, it was stated that “shrink continues to be our most significant headwind and was 59 basis points worse in the first quarter compared to the prior year.” As a result, the Gross Profit Margin dropped to 30.2%, down from 31.6% a year ago. To address these challenges, Dollar General implemented its Back-to-Basics strategy to improve performance, including more front-end presence and removing self-checkouts. Dollar General converted about 9,000 stores away from self-checkout last quarter. The company expects these efforts to start reducing shrinkage in the latter half of 2024, with a more substantial positive impact anticipated in 2025. Despite these efforts, the company reported a -29% profit growth on just 6% revenue growth last quarter.
My Fair Value P/E is a P/E of just 15. This stock seems to be overvalued as its P/E is 18.
Costco (COST) has been a fabulous stock this past year, but I think this $850 stock could fall to $650. In terms of last quarter’s highlights, Costco saw strong sales growth in ecommerce. Such grew 21%, led by gold and silver billion, gift cards, and appliances. Costco Logistics made it easy for members to buy appliances and have them delivered. Digital enhancements to Costco’s app and website helped increase member engagements, with 32% more app downloads and a 28% rise in deliveries through Costco Logistics. Costco’s profits grew 29% last quarter, which is a very strong number. But profit growth was -1% in the year-ago period, so comparisons were easy. Overall, the big-box retailer had a 9% rise in sales as same-store sales increased 7%.
My Fair Value P/E for this stock is 37, or $654 a share. The stock looks overvalued to me.
Cintas (CTAS) delivered another solid quarter which pushed the stock price to All-Time Highs. It reported 20% profit growth on 8% revenue growth as the stock pushed past $750 a share, up from around $500 a year ago. Profit margins continue to climb, with operating margin up to 22.2% from $20.6% in the year-ago period. The company just ended its fiscal year, and made $2 billion in cash flow which can be used to purchase more cleaning companies, invest in technology, build out facilities, and hire more people. Despite these strong results, I’m not a buyer as I believe CTAS stock is too high. Note that CTAS has a high P/E of 46 this quarter, up from 36 four quarters ago.
My Fair Value is a P/E of 38 which is $630, downside of 17%. The stock seems pricey.
