3 Ways to Spot Blacklist Stocks to Sell
There are dozens of blue-chip companies and long-standing brands on the S&P 500 that people bought for years.
Now … they are destined for ZERO. And they earn spots on my Blacklist.
If you’re investing in America 2.0, this is a critical step.
Find out how to unlock the full Blacklist of 100 stocks you should sell today — yes, 100! All the details for you are right here.
And I believe it can be dangerous to own America 1.0 stocks in this new era.
I’ll show you the three warning signs of a Blacklist stock. That way, you know what stocks to buy — and sell — for America 2.0 profits!
This week I want to talk about something we refer to as The Blacklist. To me, they are a list of America 1.0 companies. In other words, companies that I like to say the destination is certain: zero. These companies, in my judgement — remember, this channel is opinion — is zero.
These companies are going to end up going away. They will go away in slightly different ways. Some of them will go away through bankruptcy like Sears. Some of them will go away through merging with survivors. The others will slowly disappear out of the public eye over time.
How Can You Identify A Blacklist Company?
The only question is time. As I like to say, the speed is unknown. This week I want to talk about the companies on The Blacklist. If you want to get the list of the companies on this America 1.0 list, sign up for Bold Profits, which is the free email newsletter we send to people.
We will include a link where you can get a copy of the companies on this list. Just to warn you, many of the companies on this list are considered to be blue chips. The vast majority of them are in the S&P 500. A lot of them are even in the Nasdaq 100.
They are considered to be bellwethers. Many people swear by them. Many people depend on them for dividends and other things. Some of them have stock prices that have been going up for a long period of time. However, I believe these are dangerous stocks to own.
No Innovation Happening To The Stock
Here’s how you can identify them. Number one, when you look at what they do, a Blacklist company has a product or service that hasn’t been innovated on for a long period of time. In other words, they are more or less selling the same thing they have been, in some cases, for 30, 40 or 50 years.
In other cases it might be for 15 or 20 years. Just remember, we’ve seen an extraordinary amount of technological innovation, demographic change with the coming of the millennial generation, so the idea that these companies are still selling what they were 20, 30 years ago tells you their mindset is wrong for today.
That is clearly reflected in what they are offering consumers and their customers. One way of determining whether a company has a product or service for the current time is if they are implementing innovation. True innovation has the benefit where the per-unit cost is going down as you implement.
A great example of this is Tesla. The cost of the lithium battery that goes into its cars is in steep decline. Over time, you can find they can reduce the cost of selling the car. This is a great benefit of innovation. The per-unit cost can decline as you implement innovation, scale up and gain adoption.
For non-innovation-based companies that are stuck in the past, it’s the reverse. As they go to scale up production they find the costs are actually rising. There are no economies of scale because the product is old, the way of making it is old and no additional innovation can lower the cost and pass the benefit on to the customers.
No Sales Growth In The Company!
The other way you can identify an America 1.0 company is that the company is seeing no top line sales growth. If you go look at revenue or sales, the sales of these companies are modestly positive at best or in decline by 2% or 3%. The other check you want to do is check if you strip out price increases if they would be able to actually show a sales increase.
The moment you start to increase prices in a significant way you start to lose customers. A number of people will say there is not enough value there or they will go to a competitor. You are starting to lose customers and you are offsetting it by lifting prices. That’s a sign of weakness.
If you look at the top line of sales and revenue and you see the company is in decline or reliant on price increases, that’s another sign of an America 1.0 company that is hiding its decline.
When a Company Is Borrowing Money
The next thing I would tell you that points to an America 1.0 company is the company is borrowing large amounts of money from the bond market to buy back stock. Interest rates are low and they are effectively taking their assets and borrowing money. With that, they are buying back stock at very high prices.
That keeps the stock at very high levels, which of course keeps other investors in there. They are making a bet that they can continue to keep doing that. However, if the first few points are correct that they have a product or service that has not been innovated on and is losing market share, that’s a bad assumption.
Ultimately, all a company’s finances have to be paid from the top line. If you don’t generate sales, you don’t generate profits or cash flow. The long-term of the bond market being a source of this is in serious jeopardy. This is a dangerous thing that, for now, looks fine because the stock price is high and nobody is concerned.
However, I would tell you it’s something you should check. Is the amount of bond borrowing from a company rising? Is it being used to buy back stock and support stock prices at high levels? It’s a danger sign in my opinion.
Another one related to that and also funded by borrowing is paying high and rising dividends. Many people love this and think it’s fantastic. However, it’s only a good thing if it’s supported by rising sales that create rising profits and cash flow. Then you are paying it out of excess money you don’t need.
A rising dividend driven by borrowing is a danger sign for sure. It also shows you the mindset and priorities of the company. Rather than reinvesting into growth projects at the company, they are choosing to pay out dividends using borrowed money. It’s a bad sign. It’s unsustainable, just like the stock buy backs.
Dangerous Companies To Look At
If you look at all these things put together, you will find that the vast majority of the bigger companies out there, whether it be Kellogg or Clorox or energy companies like Exxon, they fit most of this list. In my opinion, these companies’ destinies are zero.
They are losing market share. What they are doing is leveraging up against their assets to sustain their stocks at high levels. It’s fooling a lot of people and keeping them in there. Simultaneously, they are paying out these dividends because interest rates are low and a lot of people want dividends.
However, they would obviously never hold a stock if it was going down in a steep way. I believe these stocks represent an actual danger to your finances. It’s why we have been telling our readers to avoid it and to instead focus on America 2.0 stocks, Fourth Industrial Revolution stocks.
They are experiencing growth as a result of innovation. On the downside, the America 2.0 stocks don’t pay dividends and don’t buy back stock. However, they also don’t borrow money like these companies are doing.
Also, they tend to be very volatile because at any given moment in time if they have an interruption in growth people want to sell them. People also try to actively trade them. They tend to have high volatility. In our judgment, it’s well worth it. For us, we would tell you to stick to America 2.0 and the Fourth Industrial Revolution.
Be bullish, be optimistic, be positive. I will have another one of these next week. Until then, this is Paul saying bye.
Editor, Profits Unlimited