The Death of the Blue Chip

My title above is only half-kidding. Because everytime Wall Street pronounces “The Death Of” anything, that’s pretty much when it starts working again. But there is an important point being made in a new article at the Wall Street Journal about the current state of some of our biggest stalwart stocks and their underlying businesses, a point I made two days ago here…

Here’s the Journal:

A third of the companies in the Dow Jones Industrial Average have posted shrinking or flat revenue over the past 12 months, according to data from S&P Capital IQ. Revenue growth for nearly half the industrials didn’t outpace the U.S. inflation rate of 1.7%.

Each company has its own idiosyncratic problems—changing consumer tastes at Coke, for example, or technology-industry shifts at IBM—and each is taking steps to address them.

But underlying it all is a sense of malaise for companies whose once powerful formulas for success left them too big to switch tack quickly when market conditions changed.

In my relatively short time on The Street, I’ve seen several former blue chip stocks disappear or become disgraced to the point of no return. Companies like Woolworth’s and Sears and Eastman Kodak and Xerox and Lucent and MCI – all of which, for a long time, were considered automatics for investors seeking reasonable, reliable returns in evergreen businesses.

Unfortunately, it doesn’t actually work that way. Change is the only constant.

Clouds Darken for America’s Blue-Chip Stocks (Wall Street Journal)

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