Rational investors understand that a healthy market consists of buyers and sellers. And at some point, even ardent bulls will have to exit their positions if they wish to actualize their paper profits. However, discussing stocks to short is always controversial. Essentially, you’re profiting off others’ pain, which almost sounds downright un-American.
Although I might end up getting grief for this, the concept of stocks to short is really unavoidable at this point. In April, the economy shed 20.5 million jobs. Since the novel coronavirus wreaked havoc on the U.S., over 40 million workers have filed for unemployment benefits. This level of calamity has not been seen since the Great Depression.
Admittedly, the mainstream media consistently puts a positive spin on the jobless figures, articulating that each week, the jobless claims number keeps moving lower. While this is true, we’re still seeing weekly filings in the millions. Bear in mind that during the depths of the Great Recession, the highest jobless claims number was “only” 665,000.
In other words, each unemployment report is capturing a greater share of the white-collar workforce. As such, many publicly traded companies don’t deserve their current market value. To me, it’s only inevitable that certain stocks to short will perform very well for the risk-taker.
Still, I must caution everyone: Going short is not an appropriate tactic for most investors. For instance, if you run a pure short position, your potential losses are theoretically infinite — there is no limit to how high an asset can go. Therefore, you want to educate yourself first. Having done that, you may want to consider these stocks to sell:
- Lamar Advertising (NASDAQ:LAMR)
- General Motors (NYSE:GM)
- Kohl’s (NYSE:KSS)
- Caesars Entertainment (NASDAQ:CZR)
- Camping World (NYSE:CWH)
- Dick’s Sporting Goods (NYSE:DKS)
- Wyndham Hotels & Resorts (NYSE:WH)
With this list, I’m focusing on underlying factors that could see these companies falter in the markets. Basically, I see a disconnect between technical enthusiasm and fundamental vulnerabilities. With proper risk mitigation and some luck, you might do very well with these stocks to short.
Stocks to Short: Lamar Advertising (LAMR)
You might not know Lamar Advertising by name. But if you’ve been outside almost anywhere where humans exist in the U.S. and Canada, you’ve seen its work. Specializing in billboard advertisements that dot our roadways, Lamar is a fixture of the North American landscape. Unfortunately for LAMR stock, this business model was a huge liability during the onset of the Covid-19 pandemic.
As infections worsened exponentially, both federal and state governments made the decision to shut almost everything down. While the efficacy of this move is debatable, health officials largely have a consensus that it saved lives. What the decision didn’t save, though, was business. Not surprisingly, LAMR stock cratered in March as automotive traffic in major cities practically evaporated.
But with most states reopening, LAMR has perked up. Since hitting a low on March 23, shares have more than doubled. But in my view, this is what makes Lamar a prime candidate for stocks to short.
Optimists are probably overstating the bull case for LAMR stock. While state economies are reopening, many Americans are escaping to the suburbs and more rural areas. And with the advent of mass-scale remote work, this may permanently redefine the work environment.
A future of downsizing and smaller big cities cuts into Lamar’s reach and influence, making LAMR one of the more compelling stocks to short.
General Motors (GM)
Because I know many InvestorPlace readers are passionate about iconic American industries, mentioning General Motors and stocks to short in the same sentence could have severe consequences, typically in the form of a very, very angry email. But I’m willing to take that risk because GM stock offers a chance for profitability for the bold.
First, the bankruptcy of Hertz (NYSE:HTZ) has been a gut-wrenching blow to the automotive industry. Although General Motors has attracted automotive enthusiasts for its stunning mid-engine Chevrolet Corvette, that’s not the company’s bread and butter. Instead, the Corvette lures regular folks into the dealerships, where most invariably buy normal, more attainable cars.
Before the pandemic, this business provided stability for GM stock. Following the coronavirus, though, the consumer economy has been absolutely gutted. And with Hertz sitting atop a massive fleet of rental cars with no home, you’ll eventually see an influx of inventory hitting the secondhand market.
Directly, this doesn’t impact GM stock. However, the discounts that the average Joe can get from used vehicles in the coming environment will impede almost every automakers’ sales. But I believe GM is at higher risk from Hertz because rental car agencies are typically loaded with cheap vehicles (in terms of price and quality).
And if that wasn’t enough to convince you to relegate GM to your list of stocks to short, in the new normal, demand for cars will probably decline to a far lower threshold.
As you know, all discretionary retailers suffered badly during the quarantines. Obviously, this crisis was terrible for Kohl’s because without any essential products, the company had little choice but to shut down all its stores. Let’s be real — Kohl’s wasn’t bringing home the bacon before the pandemic. Thus, Murphy’s law was especially cruel toward KSS stock.
However, with America steadily reopening its doors, this allowed Kohl’s to do the same. In anticipation of this event, KSS stock has been moving higher since early April. But just like the other stocks to short that I mentioned, the bulls are overplaying their hand.
During the quarantines, most consumers had no choice but to satisfy their discretionary purchases online. That meant Amazon (NASDAQ:AMZN), which is why the e-commerce giant has been so dominant this year. Coming out of the lockdowns, I doubt that customers will switch back to the physical retail platform, especially given the lingering health concerns.
Also, KSS stock is irrelevant because the underlying business is redundant. I mean, does anybody really care about diffusion lines from high-end brands when everything is on discount?
Caesars Entertainment (CZR)
Perhaps no other region in the developed world has been impacted by the coronavirus as much as Las Vegas. Without its gaming empire and glitzy brands like Caesars Entertainment, Vegas would be a pretty stupid place to visit, let alone live. It’s hot and miserable and there are many things out in the desert that could kill you.
But with the Covid-19 pandemic, this nightmare scenario for Sin City actually played out. Truly, the statistics are worthy of any horror film. In April, fewer than 107,000 people visited Las Vegas. That is down 97% from the 3.5 million people that visited in April 2019. Further, this should give you the real narrative for CZR stock.
However, rather than acting like it belongs in a list of stocks to short, CZR has moved substantially higher since cratering in March. Why? Bulls figured that at some point, Vegas will open. Admittedly, they were right. Although it will occur in mitigated fashion, the desert lights will once again shine bright.
Still, I’m not convinced that CZR stock will continue its positive trajectory. Primarily, people don’t have jobs. With so much uncertainty — the economy, Covid-19 and now social unrest — the wise are hoarding their cash.
If people do visit, I highly doubt that gaming revenue will rise enough to make casinos interesting for investors.
Camping World (CWH)
As a recreational vehicles specialist, you wouldn’t expect Camping World to perform well in the present circumstances. However, this is one of the bullish plays that frankly caught me off guard. After crashing down into subterranean territory in March, CWH stock skyrocketed. Today, shares are trading well into positive territory on a year-to-date basis.
Why did this occur? Fundamentally, people were scared of the coronavirus. As the Washington Post reported, during the first few weeks of the crisis, many Americans fled the big cities to the countryside. It’s what the news agency termed the “Great American Migration.” Naturally, RVs facilitate this sentiment by providing a home away from home.
But even as some of these fears subside, Camping World offers a compelling vacation package. With so many popular destinations and events closed to the public, RVing has become the last bastion of true-but-safe vacations. Therefore, CWH stock continued to trek higher.
However, I believe that whoever wanted to buy RVs for whatever reason has bought them. Moving forward, I don’t see a realistic catalyst. Primarily, most Americans are hunkering down for an unknown future. You only need to look at the personal saving rate, which has soared to a mind-blowing record level of 33%.
Plus, with growing unease over the national protests for social equality and justice, CWH strikes me as a candidate for stocks to short, especially with how quickly shares have taken off.
Dick’s Sporting Goods (DKS)
Like so many other publicly traded companies, Dick’s Sporting Goods has benefited from the rising tide concept. After an unprecedented catastrophe, everyone has a recovery mindset. Whether it’s justified or not, this broader wave lifted several names. But in my view, DKS stock merely represents a dead-cat bounce.
I say this because Dick’s is a case of missed opportunities and underlying vulnerabilities. As you know, the company took a big stance on firearms violence. But rather than make a statement like most companies would, Dick’s instead destroyed much of its firearms inventory. Moreover, management has been aggressively eliminating guns from its business.
This makes about as much sense as a car dealership burning its cars to protest drunk driving. Such irrationality has hurt Dick’s. Because of the social unrest I mentioned above — which in many cases turned into violence and looting due to multiple bad actors — gun sales have boomed.
You only need to look at the convincing rally of Sportsman’s Warehouse (NASDAQ:SPWH) — which let’s be honest should be called Guns “R” Us — to see what could have been for DKS stock.
Next, American adults just don’t go outside as often as they should. This was the case a few years before the pandemic. Today, with quarantines having become part of our new normal, it’s even easier to be reclusive. That doesn’t help Dick’s case, which is why I’ve tagged DKS as one of the stocks to short.
Wyndham Hotels & Resorts (WH)
Few sectors have suffered as much as the hotel industry amid the Covid-19 crisis. Because of the national lockdown, very few people were traveling. As well, due to severe public health concerns, many hotels either operated on a skeleton crew or shut down altogether. Thus, no one should be surprised to see Wyndham Hotels & Resort take a hit during the initial phase of the crisis.
Nor should they be shocked to see WH stock swing higher off the reopening narrative. From one perspective, the hotel industry could enjoy pent-up demand. After being forcibly indoors for months, many people are ready to escape somewhere else. This is a small but significant step toward reclaiming normalcy.
However, I think the bullish case for WH stock is exaggerated. For example, air travel, while up big from prior lows, is still a fraction of pre-pandemic levels. With fewer people willing to fly, the realistic consumer reach for the hotel industry is necessarily limited.
Plus, with protests raging day in and day out, the specter of a second wave of coronavirus only grows stronger. If that happens, WH stock could unravel in a hurry.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.