Hershey Co (NYSE:HSY)’s disconnect from fundamentals appears to be the most significant with the stock up almost 30% in the last few months, while earnings per share (EPS) are projected to grow only 10% over the coming year. This makes the company a laggard in future growth with the industry itself projected to grow EPS by 15%. As with Campbell, buying Hershey Co (NYSE:HSY) now means you are paying a premium price for a laggard in growth.
Investors don’t like Trix
General Mills, Inc. (NYSE:GIS) has been welcomed at family dining tables for decades. But the stock itself is no longer welcome in my family’s portfolio. The story remains the same – a low beta stock that has seen huge inflows and record prices bringing its valuations into question.
So let’s jump right to the chart to see the same base accumulation broken, a bubble start, and a possible top likely forming.
Chart courtesy of Motley Fool with additional input added by author
The result of this move is a P/E ratio of 17.8 which is near the five-year high P/E of 19.0. The 25% spike seen over the last few months has nothing to do with fundamentals or growth rates. It is absolutely impossible to rationalize a move of this magnitude for a stock that averages three-year revenue growth of 5.3% and three-year EPS growth of 3.4%. In fact, EPS growth for Q1 2013 vs. Q1 2012 was flat. With a forward P/E of 16.5, analysts aren’t looking for any huge earnings gains in the coming year either.
When stocks are cheap we are taught to buy and hold. But when those same stocks appear expensive or benefit from moves that seem unjustified by valuation or growth rates, it’s wise to consider taking profits. The door swings both ways and occasionally we must use the exit. Now is the time to exit these crowded trades and protect yourself from this blue chip dividend bubble.
The article It Might Be Time to Take Profits in Blue Chip Dividend Payers originally appeared on Fool.com and is written by James Catlin.
James Catlin has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. James is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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