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Practical Advice from

7 Blue-Chip Stocks That Will Be Knocked Back Down to Earth



This bull market brings me back to the dot-com bubble in 2000, when stocks flaunted such outrageously high price-to-earnings ratios that you could get a nosebleed just by buying a tech stock.

The S&P 500 is on its eighth consecutive year of positive returns — a truly amazing feat. And yet there are many who are convinced the bull market will continue because historically low interest rates (for so long) have rendered the traditional valuation metrics useless.

Epoch Investment Partners Managing Director William Booth believes that one method for determining whether a business will increase or decrease in value in the future is to find companies that are growing free cash flow over time and successfully allocating it. (Free cash flow is a company’s earnings plus depreciation and other cash charges, minus the capital expenditures necessary to maintain the business.)


So, rather than finding companies with high P/E ratios, I’m looking for companies that have low free cash flow yields and that have generally done a mediocre job of growing it.

Doing so produces a group of seven S&P 500 stocks that are destined for lower prices soon. Thus, you should be paring them from your portfolio, or even considering them for bearish plays.

This slide show is from InvestorPlace, not the Kiplinger editorial staff.


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