These sweet stocks may be going sour


Sometimes the market runs out of steam because there just isn’t enough money around. Lack of liquidity is a serious potential problem, though it seems to be one we have essentially decided we’ll never have to deal with again. Whether it be through means monetary or budgetary, both American political parties have been raining liquidity down on the economy for years, and they are getting away with it, for even though many Americans are outraged about this, very few are outraged at both political parties. One or the other political party is always going to be in control, and unfortunately, whichever party that is always tends to see victory as a full-scale endorsement of its own particular way of juking the system.

Of course, as incredulity among many economists grows, doubt is introduced, and the spending frenzy slows. To forestall the inevitable, the party in power must juke the system more and more seriously with each passing year. If you don’t understand why I would say this (some don’t) or understand completely but still think I’m wrong (some do) or can’t see anything wrong with any of that (some, apparently, can’t) then you may not buy my reasons for busting on the stocks on today’s list. For the most part, it comes down to a simple lack of faith. I don’t know exactly how it worked for Tinkerbell, but if enough people stop believing in these stocks, they’re dead meat.

Remember to treat these ideas as just that, ideas, and do your own research before making any investment decision.

Arista Networks (ANET)

Arista Networks is an upstart, disruptive networking company that’s trying to rethink networking from the ground up. It has been earning a strong following, and shares have nearly doubled over the past two years. Arista still very likely has a bright future, but the share price has become steep. That in itself seemed to cause a pretty large recent pullback, but over the past week, things have gotten more serious, with two analysts lowering their ratings, citing increased competition from Chinese white box solutions and more rigorous defense from old rival Cisco (CSCO). The company still has a bright future, but its years of running like the devil are probably over.

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Philip Morris (PM)

As you may recall, the company formerly known as Philip Morris split in two a while back, with the Altria Group (MO) covering the domestic market, and what remained as Philip Morris covering the international one. Although global cigarette sales continue to fall, PM’s revenues have risen in recent years due to higher pricing. This trend probably won’t continue for long, however, since the company is also losing market share. Before the market opened on Thursday, Phillip Morris reported lower than expected revenue, causing shares to fall by 4% by close of day. PM has a pretty nice dividend yield of 4.16%, but it’s still a loser. We already knew it was dying, and now we know it’s dying faster than we thought.

Chart courtesy of

Canadian Pacific (CP)

Canada Pacific is Canada’s biggest railroad, and it has done pretty well over the past twelve months, partly due to the Trump boom. It is now moving record volumes of freight, much of it raw materials, and much of it to or from the US. Three problems, first, the company recently reported an earnings disappointment, caused, it reported by foul weather. Second, it now has a looming labor dispute that could cause what it describes as “short-term” pain. Then of course, there’s the possibility of that blue wave. It’s possible that Democrats might attempt to enforce certain laws that have, time and time again, proven harmful to the coal, oil, and lumber industries.

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It has been a while since IBM was particularly sweet, but it certainly was at one time, and it certainly does look sour now. After the close of market on Tuesday, big blue announced higher than expected earnings, but as they have often been doing in recent years (quite intelligently), big investors dug into the finer print before the market opened. What they saw there was evidence that certain internal changes were happening too slowly, and that the company was lowering future guidance. Taken together, those issues must have looked extremely serious, as IBM shares were down 7% before the close of business Wednesday.

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Apple (AAPL)

Trust me when I say that I wish things looked good for AAPL shares. As any fund manager can tell you, this whole “stock market” thing becomes incredibly easy to win at when Apple is crisp and ripe. Right now, that’s not the case. Bank of America and Merrill Lynch were warning customers last week that Apple’s upcoming earnings report could be a major disappointment. Certain numbers from parts suppliers may also spell trouble, but no one is really supposed to know about that, so disregard it if you wish to be absolutely fair.

I note that Jim Cramer is now saying that the race to $1trillion in market value is going to be close between AAPL, AAMZN, GOOGL, and MSFT was going to be close. I could tell you of a financial columnist who told his readers that months ago, even before it had become self-evident, but modesty forbids. And I also threw in BABA.

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Julian Close

Julian Close

Julian Close became a stockbroker in 1995. In his 20 years of market experience, he has seen all market conditions and written about every aspect of investing. Julian has also written extensively on corporate best practices and even written reports for the United Nations. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC.

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