3 Dow Stocks That Wall Street Is Correctly Bearish On

For many retail investors, companies included in the Dow Jones Industrial Average are considered the "safest" stocks around. Normally, the index contains companies with pristine balance sheets and decades of strong performance.

As such, many investors expect continued solid operational and financial performance from these blue-chip behemoths, even employing a "set-it-and-forget-it" investment philosophy. And while we at The Motley Fool are certainly fans of long-term holding periods, we're not fans of ignoring material changes in your investment theses.

Coincidentally, we're not always fans of Wall Street, either. In many cases the Street favors motion (trading) over progress (investing in top-notch companies). But sometimes we think Wall Street gets it right. And to that end, we've asked a few of our specialists for stocks they believe Wall Street is correctly bearish on. These three companies appear to have one factor in common: a once-great product or business model that is now under threat by competition, changing consumer tastes, or a combination of the two.

Brian Stoffel: Coca-Cola Since July 2013, shares of Coca-Cola have barely budged while the S&P 500 is up about 24%. While some believe that makes the soda-maker's stock a steal, I beg to differ. While I don't think the company is in danger of disappearing anytime soon, I also think its best days are behind it.

It's no secret that soda is bad for you. We've known that for some time. That truth has been filtering down to companies such as Coke andPepsiCo for years.In 2014, for the 10th consecutive year, sales volume for carbonated soft drinks declined. For Coca-Cola, it was a 1.1% dip. The trend shows no signs of slowing down.

Coke is somewhat protected, as it owns the rights to several other brands, including juices such as Odwalla and Minute Maid, and water products such as Dasani and Vitaminwater. Even there, however, I don't think the long-term trends are on the company's side. Earlier this year, orange juice salesdipped 10%year over year. This has been a long-term trend, withvolumes falling to their lowestlevels since 2002.

Coca-Cola will need more than its Life soda to reverse its reputation. Source: Coca-Cola

While that only concerns one type of juice, the trend is undeniable: consumers know that most juices simply contain too much sugar and don't have the same health benefits of actually eating fruit.

Wall Street appears to be shying away from Coca-Cola, and I can't say I'm surprised.

Jamal Carnette: McDonald's Wall Street appears to be taking a wait-and-see approach to new CEO Steve Easterbrook's plans to fix the woes at McDonald's. The shares are down nearly 2% in the past year, while the greater S&P 500 is up nearly 8%.

The bigger issue, however, is that Wall Street is quickly losing confidence that Easterbook has an actual plan to fix the company's ills. And count me among those skeptics, as nothing I've seen suggests there is a strong plan to fix what ails McDonald's.

Source: The Motley Fool.

The problems at McDonald's have been widely discussed -- with some issues nearly a decade old -- but management has mostly left them unaddressed. One key issue (whether right or wrong) is the poor perception of McDonald's food quality from a nutrition and preparation standpoint. Another problem is a sprawling menu that puts margin pressure on its franchisees and slows down food delivery times for consumers.

So, naturally, Wall Street was expecting Easterbook to address these critical issues. But in a 23-minute video presentation hosted on the McDonald's corporate website, Easterbook's prescriptions for improving the company's performance fell flat. The address was long on buzzwords but short on specifics.

The actual tangible changes -- accelerated franchising and a quicker return of capital to shareholders -- do nothing to change the slowing/negative growth trajectory. McDonald's has reported falling comparable store sales in 13 of the past 16 months.

And while I'm certain that shareholders will like McDonald's big share repurchases and dividends, they are also clamoring for top-line growth -- and, as shown, they're not getting it. Nevertheless, McDonald's is trading at a higher P/E ratio than the overall market, at nearly 22 times trailing earnings.

In addition, considering that analysts expect annualized earnings growth of only 7% over the next five years, thePEG ratiois a downright frothy 3. Even that level of growth may be difficult to achieve, considering McDonald's weak sales trajectory. Right now, Wall Street institutional investors hold roughly 65% of McDonald's stock, but what happens when more active managers stop believing in Easterbrook's turnaround plans?

: Wal-Mart Wall Street analysts are clearly lukewarm on retail giant Wal-Mart. Nearly two-thirds of those following the stock give it a hold recommendation and two analysts have actually made rare sell recommendations. The stock hasn't performed well, falling 20% since mid-January as Wal-Mart has seen its earnings come in weaker than expected because of currency impacts and other operational challenges.

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Some bullish Wal-Mart investors point to positives like the expansion of its small-store Neighborhood Market concept and its recent successes in growing its e-commerce business. Yet in nearly all of its niches, Wal-Mart faces rivals that seem to have built up a competitive advantage. Wal-Mart's Sam's Club locations haven't been able to deliver the same results as its more specialized rival in the warehouse business, while Walmart.com hasn't been able to supplant the supremacy of e-commerce's biggest player.

Even in core brick-and-mortar retail, Wal-Mart has found itself getting boxed in by its competition, with deep-discount dollar stores taking away low-end business while other big-box retailers try to offer a premium experience. Unless Wal-Mart can find a way to navigate its difficult road ahead, the stock could well continue to suffer, and Wall Street is right to be skeptical about its long-term prospects.

The article 3 Dow Stocks That Wall Street Is Correctly Bearish On originally appeared on Fool.com.

Brian Stoffel has no position in any stocks mentioned. Dan Caplinger has no position in any stocks mentioned. Jamal Carnette has no position in any stocks mentioned. The greater Motley Fool, however, disagrees and recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of PepsiCo and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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