Following the Federal Reserve’s decision to keep interest rates at multi-decade highs, it’s unclear whether a relief rally or another market sell-off lie ahead. However, irrespective of the market’s next direction, there are plenty of individual stocks facing company-specific challenges. This includes a few Dow stocks to avoid.
The Dow Jones Industrial Average, a barometer of stock market health, may include some of the most established companies out there, but even some venerable names are contending with major operational and financial issues right now.
This wouldn’t be an issue if these headwinds were priced-in, but with one Dow component, that isn’t the case.
Speaking of value, there are also some Dow stocks not necessarily facing big headwinds, yet have become overvalued, due to inaccurate market perceptions.
There’s even a Dow stock that may have some positive news ahead, yet could remain stuck on a downward trajectory. So, what are the top three Dow stocks to avoid right now? Let’s dive in, and find out.
Apple (AAPL)
Apple (NASDAQ:AAPL), alongside being a Dow stock, may also be a “Magnificent Seven” stock, but returns this year for shares in the iPhone maker have been anything but magnificent.
AAPL stock has declined by around 12% since January. As I argued last month, blame this on weak iPhone demand and increased scrutiny from regulators.
Yes, it’s possible that Apple positively surprises investors with its upcoming quarterly earnings release. The company may also soon unveil its plans to capitalize on the generative AI trend.
These potential catalysts could give AAPL a boost. However, as the iPhone demand and regulatory issues persist, shares remain at risk of staying under pressure.
Apple, at around 25.8 times forward earnings, also trades at a premium to Mag 7 stocks with stronger AI catalysts, like Meta Platforms (NASDAQ:META). With these negatives in mind, AAPL remains one of the Dow stocks to avoid.
Boeing (BA)
Boeing (NYSE:BA) has also been an underperformer among Dow stocks, to a greater extent than AAPL. That’s not surprising, given this year’s rise in safety concerns about the aircraft manufacturer’s 737 Max commercial airliner.
This challenge indicates a longer road to profitability for Boeing, given its previous losses and the impact of 737 Max incidents and the pandemic on aircraft demand. That said, the big issue with BA stock is not necessarily the company’s continued operational headwinds.
The issue is that a recovery remains fully priced-in. Shares trade for around 27.2 times estimated 2025 earnings. As credit ratings agency Fitch argued in a recent downgrade, Boeing’s raising of $10 billion in debt to shore up liquidity signals there are big execution risks with the company’s comeback plans.
IBM (IBM)
During last fall and winter, the market became increasingly bullish about IBM’s (NYSE:IBM) potential to benefit greatly from the gen AI boom. During this time frame, shares surged by as much as 46%.
However, “AI mania” about IBM stock has cooled down. Since hitting prices nearing $200 per share in March, the tech giant has pulled back by around 17.5%.
The latest big drop happened late last month, right after the company’s latest quarterly earnings release. Results for the March quarter fell short of expectations.
Reiteration of 2024 guidance may have also dashed hopes about higher than expected growth this year.
Yet while shares have taken a tumble, be careful. As investors walk back growth expectations, as well as digest IBM’s announced acquisition of cloud software company HashiCorp (NASDAQ:HCP), the sell off may continue, making “Big Blue” one of the Dow stocks to avoid.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.