There’s light at the end of the pandemic tunnel and economists forecast that the U.S. economy should be red-hot again in the second half of this year and entering 2022. And while there currently are many stocks to buy, there are a handful of stocks to avoid until the economy is again firing on all cylinders.
These are companies that are unlikely to improve, holding back their shares from running higher until the economy is strong again and consumer spending ramps up.
These four names top our list of stocks to avoid until the economy’s hot again:
- Starbucks (NASDAQ:SBUX)
- Home Depot (NYSE:HD)
- Marriott International (NASDAQ:MAR)
- Delta Air Lines (NYSE:DAL)
Stocks To Avoid: Starbucks (SBUX)
A lot of investors are bullish on retail coffee chain Starbucks. Many expect big upward moves in the stock. The median price target on SBUX stock is $112 a share with a high estimate of $125. However, since late November, the share price has struggled to remain above $100 and has barely moved, bouncing between $98 and $102 a share.
Most SBUX stock investors shouldn’t expect a significant breakout until the U.S. economy is again running hot.
Starbucks has been taking steps to position itself for success once Covid-19 is firmly behind us. The company is closing 800 stores in primarily urban centers and then opening 850 new stores in suburban communities, reflecting the permanent shift to work from home arrangements for many Americans. Additionally, Starbucks says it will increase pay for baristas, shift supervisors and attendants by at least 10% in an effort to attract and retain staff.
However, coffee is largely a social event. And until people are able to meet friends, family and co-workers in-person for a mask-free latte or cappuccino, SBUX stock will likely remain stuck in neutral.
Home Depot (HD)
The shares of home building and improvement retailer Home Depot had a decent run in 2020, rising 92% between March and August as consumers spent their money (including government stimulus checks) on home improvement projects such as finishing their basements and adding a home office.
However, HD stock has deflated since August, falling 6% from a 52-week high of $292.95 a share to its current level of $274.56. And the stock has barely budged since September.
Analysts seem to have concluded that the run in HD stock has been exhausted and that consumers have maxed out their home improvement budgets. Until the economy begins running at full steam again it is unlikely that Home Depot will see another surge in consumer spending on paint, flooring and appliances.
What’s needed is more discretionary spending and that will come once hiring accelerates, wages rise and Americans feel comfortable spending some of the $1.3 trillion they’ve saved since the Covid-19 pandemic began.
Marriott International (MAR)
The share price of hotel chain Marriott International got a nice pop this past autumn as vaccines began to get regulatory approval and optimism around “jabs” intensified. But not so fast.
While travel will eventually return with a vengeance, that likely won’t happen until a majority of Americans are vaccinated or herd immunity takes hold and the economy begins charging ahead. And, conservative estimates, forecast that happening this fall and into early 2022.
Until then, investors should steer clear of MAR stock and other hotel securities. Currently, the share price of Marriott International is hovering just above $125, still well off its 52-week high of $150.97 per share.
The company made clear in its most recent earnings report that it is not out of the woods yet when it comes to the pandemic. Third-quarter revenue was down by 57% from the previous year at $2.3 billion, while its global occupancy rate was 35%, down about 41 percentage points compared to the same period of 2019.
Again, hotels will eventually rebound. But they are unlikely to do so until the economy is again sprinting forward. Until then, it’s buyer beware.
Delta Air Lines (DAL)
Just as with hotel stocks, the share prices of airlines are likely to take off with the broader economy in late 2021 and early 2022. And among U.S. carriers, Delta Air Lines stock has been as hard hit as any.
At its current price of just above $42 a share, DAL stock is 29% below its 52-week high of $59.92 per share. Recovery is unlikely until the economy is hot again and people begin flying again for leisure and, to a lesser extent, for business. Most importantly will be the lifting of restrictions related to Covid-19 that is keeping most Americans at home.
When the pandemic is behind us, Delta Airlines stock should fly extremely high. Morgan Stanley recently raised its forecast on DAL stock to $55 from $51 previously.
The company is definitely planning a return to full operations as quickly as possible. Delta recently announced that it will return 400 furloughed pilots to regular flying status by this summer. While that news is encouraging, the carrier is not out of the woods yet. Delta reported a net loss of more than $12 billion for fiscal year 2020. Ouch!
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.