Just about every year at this time, I offer ratings – buy, neutral or sell – on the largest U.S. stocks.
These giants aren’t my meat and potatoes. My real sweet spot is in small- and mid-cap stocks. But I rate the behemoths because I know a lot of readers are interested; these stocks are widely owned.
Apple Inc. (AAPL, Financial), $607 billion, is the largest U.S. stock by a mile. The company is highly profitable and has a mountain of cash. But the iPhone, its flagship product, may be slowing a little. Avoid.
Microsoft Corp. (MSFT, Financial), $448 billion, is still a great company, but growth and profitability aren’t as impressive as in the glory days. I recommended it in 2010-2013 but now I think its price is too high. Avoid.
Amazon.com Inc. (AMZN, Financial), $382 billion, is a stock about which I’ve been consistently skeptical. I’ve been wrong, as sales and the stock price have soared. But all my experience tells me that paying 200 times earnings for a stock is insane. Avoid.
Exxon Mobil Corp. (XOM, Financial), $346 billion, is king of the energy business, which has been a troubled realm since mid-2014. The troubles aren’t over, but I think the tide is slowly turning. Buy.
Johnson & Johnson (JNJ, Financial), $325 billion, is a broadly diversified health-care company with a business model I admire. It’s not especially popular with Wall Street’s analysts today, but its profit margin has been expanding. Buy.
Facebook Inc. (FB, Financial), $297 billion, one of the four popular “FANG” stocks (Facebook, Amazon, Netflix and Google), boasts rapid earnings growth as ad sales improve. It’s popular with analysts but I dislike it at 61 times recent earnings. Avoid.
Alphabet Inc. (GOOG, Financial), $270 billion, is the proud parent of Google. I admire its innovations, its talent pool and its acquisitions. But valuations (31 times recent earnings, almost 7 times sales) keep me on the sidelines. Neutral.
General Electric Co. (GE, Financial), $268 billion, has been reemphasizing its industrial roots. A year ago, I said I wanted to see how this strategy played out for the next 12 months. Results are mixed, so I want to wait longer. Neutral.
AT&T Inc. (T, Financial), $254 billion, sports a 4.6% dividend yield. I like it for income-oriented investor. Buy.
JPMorgan Chase & Co. (JPM) has shown only mediocre growth and profitability of late, but I have faith in the ability of CEO Jamie Diamond. Buy.
Procter & Gamble Co. (PG), $234 billion, is a household word, but its ten-year revenue and earnings growth rates are near 1%. People are paying 24 times earnings for a stock that’s solid but not growing much. Avoid.
Wells Fargo & Co. (WFC), $231 billion, has the same problem all banks have. It’s hard to earn a good spread on lending when interest rates are low. I think things will improve, but slowly. Neutral.
Wal-Mart Stores Inc. (WMT), $224 billion, remains a leader in low-price retailing, but competitors have copied many of its innovations such as detailed computerized tracking of sales and inventory. Avoid.
Verizon Communications (VZ), $214 billion, made a good move in my opinion by buying internet portals AOL and Yahoo. However, I view it as inferior to AT&T in labor relations and balance-sheet strength. Avoid.
Pfizer Inc. (PFE), $208 billion, is a stock I own for my more conservative clients, but I am getting nervous as the price has climbed to 30 times earnings. Neutral.
Chevron Corp. (CVX), $187 billion, should gradually strength with the energy industry, like its big brother Exxon Mobil. I believe it is doing a better job in exploration than most. Buy.
Berkshire Hathaway Inc. (BRK.B), $186 billion, looks like a bargain to me at 14 times earnings. It’s run by investment genius Warren Buffett (Trades, Portfolio). No one can replace him, but he’s clearly been working hard on succession planning. Buy.
Coca-Cola Co. (KO), $184 billion, continues to show high profitability but little growth. People are starting to cut back on soda, and profit margins aren’t as high on most other beverages. Avoid.
Intel Corp. (INTC), $176 billion, the largest player in semiconductor chips for personal computers, has suffered as people move to smartphones and away from PCs. I think the stock will be a buy sometime, but not yet. Avoid.
Merck & Co., like Pfizer, is a stock I’ve often owned for clients. But at present, with the stock at 35 times earnings, my enthusiasm is weak. Neutral.
Past Results
This is the 13th column I’ve written rating the biggest stocks.
Overall, results for the first twelve columns have been respectable. My Buys returned an average of 12.0% in twelve months, my neutrals 11.3% and my Avoids 9.3%.
Last year, however I had enough egg on my face to make a king-sized omelet. Led by Amazon.com, the stocks I said to avoid scored a 24.7% return, while my Buy-rated stocks managed only 4.8%.
