With the consumer confidence index hitting a bleak 44.5% in August, it seems that the only people not aware that we’re sinking back into a recession are politicians, economists and Federal Reserve Chairman Ben Bernanke. That’s bad news for stocks that are closely tied to consumer spending.
The latest economic forecasts are grim, with zero new jobs created in August and the unemployment rate stuck at 9.1%. The National Association for Business Economics on Monday revised its economic growth prediction for this year to 1.7%, down from 2.8%. What’s worse, the Conference Board’s Consumer Confidence Index tanked last month, plummeting to 44.5 — nearly 15 points lower than in July.
Here are five stocks to sell as the economy weakens and consumer confidence plummets:
Hewlett-Packard
The computer market is characterized by cutthroat competition, and Hewlett-Packard (NYSE:HPQ) has been getting hammered as buyers switch to tablets. HP shares have dropped 30% in the past month on merger rumors and a restructuring that would spin off its PC operations. The stock will fare worse if jittery consumers pull back on their purchases.
At $22.58, HPQ is trading more than 54% below its 52-week high of $49.39 in February. With a market cap of $46.32 billion, the stock has a price/earnings-to-growth ratio of 0.62, which indicates the stock is undervalued. HP’s debt position isn’t good, with total debt of $25.7 billion to total cash of $12.95 billion.
Bank of America
Since its government bailout, Bank of America (NYSE:BAC) has staggered back to the point of needing a second bailout — one that certainly will not happen 14 months before a presidential election. If more consumers lose their jobs and can’t pay their mortgages, loans and credit card bills, BAC will be left holding a lot more debt than it’s struggling with today. And the company’s Project New BAC, which plans to cut 6,000 more jobs this year and 30,000 between now and 2013, is more likely to add weight to an already staggering economy than fix BAC’s problems.
At $7.05, BAC is trading nearly 54% below its 52-week high of $15.31 in January. With a market cap of $71.45 billion, the stock has a PEG ratio of -1.75, a cautionary sign that points to an expected decline in earnings. BAC has total debt of $771.97 billion and total cash of $638.54 billion.
US Airways
The airline market is a notoriously hard place to make money. And US Airways (NYSE:LCC) faces a lot of headwinds, including the loss of $10 million in operating income because of the cancellation of 9,100 flights caused by Hurricane Irene.
LCC set a new 52-week low of $4.68 on Monday and is trading nearly 58% below its 52-week high of $12.26. With a diminutive market cap of $862.28 million, the stock has a PEG ratio of –171.33, which points to declining earnings. LCC has a total debt of $4.34 billion and total cash of $2.25 billion.
SuperValu
Like most nationwide grocery chains, SuperValu (NYSE:SVU) has struggled this year because of high fuel and commodity prices. But with industry estimates of an additional 4% increase in wholesale food prices, SuperValu might find itself in a price war it can ill afford to wage. The company announced Sept. 8 that it would sell its gas stations in the Midwest to West Coast regions and use the capital to strengthen its business. Time will tell the wisdom of this move since gas sales are boosting some of its competitors’ profit margins.
At $7.52, SVU is trading nearly 40% below its 52-week high of $12.45 last October. With a market cap of $1.6 billion, the stock has a PEG ratio of 0.76, indicating the stock is slightly undervalued. The company’s debt position is challenging, with total debt at $6.98 billion and total cash of only $172 million.
Aeropostale
Aeropostale (NYSE:ARO) fell victim to poor judgment in anticipating what teen girls want to buy. The result: Sales fell dramatically, and stores were stuck with a huge inventory of last-season merchandise. Aeropostale now is struggling to recover from its fashion faux pas by slashing prices to the bone in an attempt to salvage the rest of the fiscal year.
Deep discounting by competitors also hurt the company. ARO’s second-quarter profits dropped a whopping 93%, due in part to a same store sales drop of 14%. Aeropostale’s margins remain vulnerable to discount competitors, who are better attuned to the fads of teenage girls.
The stock set a new 52-week low of $9.86 on Monday, 63% above its 52-week high of $27.73 last December. With a market cap of 821.89 million, the stock has a PEG ratio of 1.45, indicating that it is overvalued. Aeropostale has total cash of $73.08 million and no debt.
As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.
