Consumer stocks have been a mixed bag for investors in 2023. The Consumer Discretionary Select Sector SPDR Fund (NYSEARCA:XLY) is up 34.5% so far this year, making it the S&P 500’s third-best-performing sector. Meanwhile, the Consumer Staples Select Sector SPDR Fund (NYSEARCA:XLP) is basically flat. Today’s list of consumer stocks to sell contains a discretionary high-flyer, as well as two consumer staples stocks that have significantly underperformed this year.
All three consumer stocks to avoid are similar in that they face significant sector and company-specific headwinds.
More broadly speaking, investors should also be concerned with the slowdown in retail spending. U.S. retail sales for June came in below expectations, rising just 0.2% versus a 0.5% increase in May. Furthermore, as a recent Wall Street Journal article notes, while sales volume is up, the impact of lower merchandise prices and higher labor costs could be revealed as retailers report their fiscal second-quarter results.
Add to slower consumer spending a cooling housing market and softening travel demand, and the names below are clear choices for consumer stocks to sell or, at the very least, avoid.
Home Depot (HD)
If you’re looking to buy a home right now, you know there are a number of factors working against you. Interest rates are at the highest level in more than two decades, while the rate on a 30-year mortgage is near a 20-year high. And although home prices have come down in recent months, they remain near record highs, pricing out many buyers.
With supply tight and few people clamoring to trade their current mortgage rate for a higher one, Redfin reported that the number of homes sold in the U.S., on average, fell 15.7% year over year in June. And according to the National Association of Realtors, existing-home sales dropped 3.3% in June and 18.9% from a year ago.
This does not paint a pretty picture for home-improvement retailer Home Depot (NYSE:HD), which benefits from people moving to new homes and buying appliances, materials, etc.
For its fiscal first quarter, Home Depot missed revenue estimates by the widest margin in more than 20 years, CNBC reported. In addition to higher interest rates, cold weather and falling lumber prices hit sales. And management lowered its full-year sales forecast, calling for comparable sales to drop between 2% and 5%.
The company is scheduled to report fiscal Q2 earnings on Aug. 15. While shares are up just 4% year to date, they trade at nearly 22 times forward earnings. That seems pricy heading into what could be another disappointing earnings announcement. Investors should play it safe and put HD on their list of consumer stocks to sell.
CVS Health (CVS)
Pharmacy retailer CVS Health (NYSE:CVS) is facing a multitude of challenges, which is reflected in the more than 20% year-to-date decline in its shares. However, the stock could fall much further, making it one of today’s consumer stocks to sell.
The company reported second-quarter results earlier this month that beat on the top and bottom lines as CVS sought to reduce costs. However, while revenue was up 10% year over year, net income declined 37% during the same period. This was due in part to a 17% drop in net income for the company’s pharmacy and consumer wellness segment as Covid-19-related sales continued to wane.
Also weighing on profits were higher expenses related to increased medical costs as people utilized more outpatient services, noted Chief Executive Officer (CEO) Karen Lynch. And while CVS laid off 5,000 employees in the previous quarter, I suspect higher labor costs pressured earnings as well.
If that weren’t enough, CVS faces tough competition from other brick-and-mortar competitors, as well as Amazon (NASDAQ:AMZN). In addition to moving into the online pharmacy business, Amazon is now offering virtual health care across the country.
Finally, CVS is paying out billions to settle lawsuits related to its alleged role in the country’s opioid epidemic. That’s a lot stacked against one stock.
Airbnb (ABNB)
While travel demand may not be set to fall off a cliff, it is normalizing after a post-pandemic surge. And that could be problematic for travel stocks that have run up sharply this year. That includes Airbnb (NASDAQ:ABNB), which is up more than 67%.
The company reported Q2 results last week. While revenue increased 18% year over year and net income jumped 71.5%, the company saw a continued slowdown in nights and experiences booked. This important metric grew 11% year over year, but the 115.1 million nights and experiences booked was 2.5 million below estimates and much slower than the 19% growth in the first quarter.
ABNB looks more vulnerable than some other names in the travel sector given that the stock trades for 39 times forward earnings, which is higher than 90% of its peers. If travel demand begins to slow and lodging prices come down, Airbnb could see its growth slow further, causing investors to check out.
On the date of publication, Larry Ramer 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.
