Get OUT Of These 7 Income KILLING Stocks Now!

Get OUT Of These 7 Income KILLING Stocks Now!

Get OUT Of These 7 Income KILLING Stocks Now!

By Charles Sizemore, Editor, Peak Income

There was an old saying among IT professionals that "no one ever got fired for buying IBM."

The idea was that, while better or cheaper hardware, software or tech services might be available, you don't want to risk betting on a relative unknown because if there are snags later, it's your fault. Buying IBM was safe. No one would blame you if you bought an IBM server and it ended up crashing. It wouldn't be your fault because everyone else was doing the same thing.

Sadly, the same mentality seems to prevail when it comes to investing. There are a handful of stocks that "everyone" owns, be they a professional fund manager or an ordinary investor.

Why do they own them? Because everyone else does. If they blow up, no one will blame you. There might even be a sense of camaraderie in all losing money together!

Believe it or not, this pressure is far worse for professional money managers than it is for individual investors. You, as a regular private citizen, don't have anyone looking over your shoulder to see your returns.

But, if you're a professional, you potentially have thousands of clients or prospective clients examining your every move. If you make a move that deviates significantly from the mainstream ? and you're right ? great! You look like a genius. But if you deviate and you're wrong, you'll look like an idiot and might even be out of business.

As a case in point, consider the case of Bruce Berkowitz of the Fairholm Fund. Berkowitz was once considered one of the greatest value investors in history. In fact, Morningstar named him the Domestic Stock Fund Manager of the Decade in 2010. His bold contrarian moves made him a legend... when he was right. But he hit a rough patch after 2010, and his firm has been gutted as a result. In 2011, Berkowitz managed over $20 billion. Today, he manages less than $2 billion, and the figure continues to drift lower.

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Don't feel too bad for Berkowitz. He made some colossal mistakes along the way, such as effectively betting the farm on bankrupt retailer Sears turning the corner. If you make a mistake that big, you probably don't deserve to manage other people's money.

The lesson stands, however. If you go against the crowd ? and you're wrong ? it can mean the end of your career.

The rise of indexing actually makes this dynamic worse. Every manager is judged on how they perform relative to their index, which usually means the S&P 500. This incentivizes them to more or less copy the S&P 500 with only a few small alterations. If you differ too much from the index ? and you're wrong ? well, you know what happens.

They even have a special phrase for when a manager deviates from the index: tracking error.

Stop and think about that. The degree to which you fail to copy the S&P 500 verbatim is an "error."

It's no wonder that virtually every large-cap fund manager owns the same handful of large, and consequently overpriced, stocks.

The good news is that you, as an individual investor, don't have these kinds of pressures. You are accountable to no one but yourself. This means you're free to dump the same tired old stocks that everyone else owns and focus instead on hidden, dividend-producing gems.

Today, we're going to take a look at seven stocks "everyone" seems to own that can potentially wreck your retirement.

If you own any of these, you should strongly consider selling or at least reducing your stake.

Amazon

I'll start with that online retailer we all know and love, (Nasdaq: AMZN).

Amazon is one of the great success stories of our times... and in American history, for that matter. Once the history books are written, I expect founder Jeff Bezos to be included among the pantheon of great American industrialists like Ford, Rockefeller or Morgan. It's not an exaggeration to say that Amazon has literally changed the world.

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But today, Amazon is essentially in a three-way tie (along with Apple and Microsoft) to be the world's most expensive company with a market cap of over $800 billion. The market cap actually exceeded $1 trillion for a stretch of last year.

The thing is, once a company becomes the biggest in the world, it generally doesn't stay there for long. Think back to the late 1990s. At their peaks in 1999 and 2000, Microsoft, General Electric and Cisco Systems had respective market caps of $901 billion, $848 billion, and $755 billion in today's dollars. And all three stocks went through a grueling period of underperformance in the years that followed. Microsoft's share price didn't surpass its old 1999 high until the last quarter of 2016!

Likewise, after years of outperformance, ExxonMobil was the most valuable company in the world in 2007 with a market cap of $623 billion in today's dollars. And guess what? ExxonMobil's market cap is barely half that amount today.

None of this means that Amazon is due to take a tumble tomorrow. Who knows, it could continue to outperform for a few more years. It would be just like the market to do what you least expect. But given the track record of former market-cap crowns, would you want to bet your retirement on it?

Johnson & Johnson

I have a friend whose investment acumen I truly respect. Grant is a seasoned veteran who has been investing for decades and has the results to show for it. But he and I strongly disagree when it comes to the bluest of old blue chips, big pharma and consumer staples giant Johnson & Johnson (NYSE: JNJ).

Years ago, when bond yields were scraping all-time lows, Grant told me that he had established a large position in JNJ that he considered a replacement for bonds.

Hey, I get it. Johnson & Johnson is one of the most reliable dividend payers out there, and at the time it paid a dividend of about 4% (today, the yield is about 2.8%). I would consider the JNJ dividend about as safe as the coupon payments on a AA-rated bond. Something truly extraordinary would have to happen for JNJ to ever cut its dividend.

But I won't be making Johnson & Johnson a portfolio holding any time soon, and if you own it you might want to consider unloading it. Because at today's prices, I don't see the shares keeping pace with the S&P 500. In fact, I'd be surprised if they made money at all over the next five years.

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JNJ trades for 4.4 times annual sales. To put that in perspective, the S&P 500's price/sales ratio is a little over 2. This is the most expensive JNJ has ever been in its history with the sole exception of the very late 1990s, at the top of the tech bubble.

The last time JNJ's price/sales ratio peaked, the shares traded sideways for the following decade, barely advancing at all.

I don't know about you, but zero capital gains and a piddling 2.8% dividend yield doesn't sound all that compelling.

Procter & Gamble

Another stodgy old blue chip you might be better off selling is consumer staples juggernaut Procter & Gamble (NYSE: PG), the maker of Gillette razors, Crest toothpaste, Tide detergent and a host of other common consumer products.

For decades, Procter & Gamble was considered to be about as safe of a stock as you were ever going to find. Warren Buffett was a major shareholder (he was a major Gillette shareholder and become a major PG shareholder when Procter & Gamble bought out Gillette years ago).

But its entire model is coming under attack. To start, men don't shave as often as they used to. Call it the hipster effect, call it laziness or call it the whims of fashion. But beards are socially acceptable now, even in the business world. And the men that still prefer to be clean-shaven are increasingly turning away from Gillette's expensive blade cartridges to cheaper alternatives like Dollar Shave Club. (I'm old school and use a single-blade safety razor, in case you're wondering.)

It's not much better for the company's other branded products. Consumers started trading down to cheaper store brands during the Great Recession of 2008 and never switched back en masse. And Amazon is actively promoting this trend by offering cheaper store brands of its own.

Meanwhile, Procter & Gamble isn't a cheap stock. At 3.8, it's price/sales ratio is close to a new all-time high.

If you own this one, strongly consider dumping it.

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