Ticking Time Bombs: 7 Consumer Stocks to Dump Before the Damage Is Done

Stocks to sell

With the potential for consumer spending to decrease in the months ahead, uncertainty is rising with consumer stocks. Sure, U.S. consumers have been resilient despite challenges such as high inflation and rising interest rates.

However, this resilience may morph into weakness. Just this week, the Conference Board announced that the Consumer Confidence Index just hit a four-month low.

According to the Conference Board’s chief economist, Dana Peterson, a pull back in consumer spending may be in store, as interest rates stay high, student loan repayments resume, and pandemic-era savings are depleted.

Don’t get me wrong, not all consumer stocks are on the verge of collapsing.

Some consumer staples names could actually perform well, as another round of economic/stock market turbulence causes investors to cycle back into defensive stocks like consumer-focused blue-chips.

But with consumer cyclical stocks, especially more speculative consumer cyclical names, all bets are off. With this in mind, you may want to make an exit/steer clear of these seven consumer stocks to sell.

Dutch Bros (BROS)

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The potential for a consumer spending slowdown/decline has already weighed on Dutch Bros (NYSE:BROS) shares, which have dropped by around 22.7% in the past month.

The Grants Pass, Oregon-based drive-thru coffee chain has experienced a high level of growth in the years following the pandemic.

Between 2020 and 2022, revenue more than doubled, and the company has finally reached the point of GAAP profitability.

However, even as earnings forecasts call for earnings to keep steadily increasing, with Dutch Bros releasing an underwhelming update to guidance after its earnings release in August, coupled with the current consumer slowdown, more disappointment may be ahead.

“Priced for perfection” at 138.5 times forward earnings, further bad news could drive another big drop for BROS stock. The company also earlier this month raised $300 million through a secondary offering. The resultant dilution could also have a negative impact on future returns.

GameStop (GME)

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GameStop (NYSE:GME) may be known for being one of the top meme stocks, but the video game retailer is first and foremost a consumer discretionary stock.

Shares may have already coughed back a large amount of their meme-era gains, yet it may just well be the consumer slowdown that knocks this “meme king” back to pre-2021 prices.

With the company reporting satisfactory results last quarter, including lower-than-expected losses, it makes sense why GME stock is holding steady right now.

However, if consumer resilience during the summer morphs into greater belt-tightening in the fall and winter, GameStop could report far more lackluster results over the next few quarters.

Even worse, as InvestorPlace’s Thomas Yeung pointed out just after the Sep. 6 earning release, it appears that the company is in managed decline mode. This in turn points to my bearish “GameStop is the next Blockbuster thesis” playing out with GME.

Gap (GPS)

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Gap (NYSE:GPS) shares may be reasonably-priced, at around 14.7 times forward earnings.

The entrance of a new CEO Richard Dickson and the subsequent planned ramping up turnaround efforts, may suggest that this retailer stock has nowhere to go but higher from here.

Unfortunately, while GPS stock on the surface may sound like a potential contrarian buy, a closer look suggests it is instead one of the consumer stocks to sell.

While Gap may seem cheap compared to stocks overall, comparable names trade at even lower valuations. The turnaround talk notwithstanding, before results could potentially improve, more pain may lie ahead.

At least, that’s the view of InvestorPlace’s Larry Ramer. After reporting declining sales during last quarter (6% year-over-year), declines during this quarter are expected to be even greater (10%).

A further shattering of consumer confidence may lead to even more poor fiscal performance during the holiday quarter.

Planet Fitness (PLNT)

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As I recently discussed, an unexpected CEO ouster has driven a big price decline for Planet Fitness (NYSE:PLNT).

Following this steep drop, shares in the fitness center franchising company may seem oversold to some today.

My view? Err on the side of caution, and hold off on PLNT stock. Why? For one, shares have tanked, but almost entirely because of the uncertainty surrounding future leadership, as the company has appointed an interim CEO, yet is still searching for a permanent replacement.

They may not fully factor the potential impact of a consumer pullback into PLNT’s valuation.

Sure, as one Seeking Alpha commentator recently argued, the low Planet Fitness membership price could serve as an economic moat.

However, while this may keep the performance of existing operations steady, a low gym price isn’t going to solve the issues affecting franchisee growth, such as rising construction costs and high interest rates.

Boston Beer Company (SAM)

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Boston Beer Company (NYSE:SAM) is the beverage firm behind alcoholic brands like Samuel Adams, Angry Orchard, and Truly Hard Seltzer.

One of the hottest consumer stocks during the pandemic, SAM has dropped in price considerably since then.

Chalk this up to management’s overestimation of hard seltzer’s enduring popularity. More recently, however, investors have been warming back up to SAM stock.

The success of a newer product, Twisted Tea, is helping to counter declining hard seltzer sales. However, analysts and investors may be overestimating how much Twisted Tea will lead Boston Beer back to levels last seen during the height of Truly’s popularity.

Shares today trade for 50.1 times earnings, a steep premium to most other alcoholic beverage stocks.

SAM shares may be cheaper today than they were nearly three years ago, but just like in late 2020/early 2021, this stock could be “priced for perfection” once again.

Wayfair (W)

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With around 27.6% of its outstanding float sold short, Wayfair (NYSE:W) is one of the most heavily shorted consumer stocks.

With this high level of short interest, you may be curious as to whether there’s any strong “short squeeze potential” with shares in this online home furnishings retailer.

Yet while anything’s possible, the short side of the trade with W stock has become very crowded for a good reason. After peaking during the 2020 lockdown era, sales for the company have continued to drop.

The consumer slowdown, plus the slowdown in the housing market, are likely contributing to this post-pandemic hangover.

Declining revenues have also swung Wayfair from marginally profitable, to extremely unprofitable.

Over the trailing twelve months, the retailer has reported net losses of just over $1 billion. Although forecasts call for losses to narrow considerably next year, today’s consumer spending trends call this into question.

Wynn Resorts (WYNN)

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Wynn Resorts (NASDAQ:WYNN) may have avoided being a victim of the cyberattacks that recently hit leading casino operators such as Caesars Entertainment (NASDAQ:CZR) and MGM Resorts (NYSE:MGM), but that doesn’t make this gaming stock a buy.

It’s likely best to consider WYNN stock a sell instead. Mainly, due to the stock’s “priced for perfection” vibes.

Sure, a forward multiple of 28 might not seem extremely pricey, although this represents a premium to many other casino stocks. However, expectations could be too high right now. How so? Yes, gaming revenue in Wynn’s flagship market Macau has bounced back considerably.

This comes despite post-Covid economic challenges in mainland China. Still, as Louis Navellier and the InvestorPlace Research Staff argued back in August, the upside from this may already be priced-in.

A worsening macro picture in China could eventually affect the operating performance of the company’s three Macau casino properties.

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.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

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