With uncertainty looming for the rest of the year, it’s time to consider which S&P 500 stocks to sell.
Is the stock market set to rally into year-end or take a terrible tumble this fall? With this much macroeconomic uncertainty, there’s a good argument to be made in either direction.
Today, however, we’re not looking at S&P 500 stocks to buy. Rather, we’re going to zero in on the S&P 500 stocks to sell going forward.
Given the headwinds facing the economy, these S&P 500 stocks to sell will be lucky to hold their own even in a bull market, and they could full-on crash if a recession occurs.
Advanced Micro Devices (AMD)
Advanced Micro Devices (NASDAQ:AMD) has been one of the year’s most popular technology stocks. Traders gravitate to the firm’s possibilities in fast-moving areas such as artificial intelligence-powered chips. As the year winds up, though, it’s among the S&P 500 stocks to sell.
However, at least so far, AMD hasn’t transformed the excitement into improved operating results. In fact, AMD’s revenues and earnings have fallen sharply year-over-year.
Meanwhile, AMD’s dedicated AI chips appear unlikely to generate much traction until 2024 and so far lack much in the way of high-profile customers or proven market demand.
Meanwhile, overall semiconductor market demand appears to be fading. Taiwan Semiconductor Manufacturing (NYSE:TSM) sent shockwaves through the sector when it announced delays in new production given weak customer demand and inventory concerns.
Since firms like AMD and Nvidia (NASDAQ:NVDA) buy from TSM, this is a direct warning sign that next quarter’s earnings could be greatly disappointing.
American Airlines (AAL)
Traders made significant money on the travel reopening trade. As people got out of their homes and started going on vacation again, it led to huge profits for travel companies thanks to all the pent-up demand.
However, this trade is rapidly ending. Year-over-year growth numbers have come down significantly, which isn’t surprising as 2022 was a boom time for travel.
Meanwhile, with leisure and hospitality firms reporting large profits, workers are demanding a fat cut of the pie.
American Airlines (NYSE:AAL) ust gave a huge pay increase to its pilots to avoid the sort of strike that could cripple the automakers this fall. It makes sense why American paid its employees a lot more, particularly given the pilot shortage in the industry.
That said, with travel demand now rolling over, the higher labor costs will eat into American’s profits. That’s to say nothing of the suddenly soaring price of jet fuel.
Meanwhile, American’s gargantuan debt load continues to poise a major risk as interest rates keep on climbing. All this leads to a resounding conclusion: American’s profitability is heading down and the stock price is likely to follow.
Judging by the headlines, growth stocks are having an exceptional year. But a handful of mega-cap technology companies that have sharply outperformed this year influenced the Nasdaq Index. Under the surface, the indicators are decidedly more mixed.
The thing is that while there are pockets of strength, such as in artificial intelligence companies, most growth companies are seeing a decided slowdown in business. Take graphics software company Autodesk (NASDAQ:ADSK), for example.
After many years of double-digits annual revenue growth, analysts see Autodesk notching less than 9% revenue growth this year.
The firm’s 29 times forward P/E ratio, however, reflects something we’d expect to see on a younger and more dynamic firm. Autodesk was founded way back in 1982.
Arguably, it has already largely tapped its potential addressable market, and it could be at risk of disruption from AI solutions. All this makes ADSK a risky bet as growth slows.
Royal Caribbean (RCL)
Royal Caribbean (NYSE:RCL) faces many of the same challenges that American Airlines does. Slowing consumer spending and rising labor and fuel costs are likely to hit the cruise industry hard.
In some ways, cruise lines will face even more perilous waters than the airlines. At least there is still a business travel recovery story to bolster the airlines.
While vacation traffic is likely peaking now, the return to the office and rebound in business travel gives airlines something to look forward to.
Cruises, however, have very little positive going forward. Consumer spending will be declining, and many people already sated the urge to go cruising in 2022 and 2023 once the world started to reopen.
Royal Caribbean also faces a mountain of debt. In fact, it has racked up more than $18 billion in long-term debt and is paying nearly $1.5 billion per year in interest payments. This leaves it in a vulnerable position as the economy softens.
The United States just reached a new record high in total outstanding consumer credit card debt, topping the $1 trillion mark. The government’s pandemic-era relief has long since run out and many American households are finding themselves trapped deeper than ever in bills.
Things will get worse before they get better.
Soaring interest rates make it more expensive to buy houses, cars, and pay for consumer credit. Meanwhile, long-paused student loan payments are starting back up momentarily, adding yet more strain. Inflation inexorably keeps driving up prices of essential goods.
All this to say, it’s a rough time for retailers of things that are “nice to have” rather than essentials. This puts Target (NYSE:TGT) in particular in a rough spot.
Target has attractive merchandising and many shoppers prefer its more upscale experience to that of more value-focused rivals such as Walmart (NYSE:WMT).
With the economic slump bearing down, it remains to be seen if middle class shoppers will still have the extra disposable income to keep places like Target humming. TGT stock has already slumped over the past year.
I fear analyst estimates and price targets are still much too high. As a weak holiday shopping season arrives, don’t be at all surprised when TGT stock drops below the $100 mark.
Simon Property Group (SPG)
Weakening consumer spending won’t just affect retailers this holiday season, it will also have a negative impact on the landlords who own the buildings where those retailers do business.
This brings us to Simon Property Group (NYSE:SPG), which is the nation’s largest publicly traded mall owner. In addition, it operates outlet malls and some international shopping centers.
Simon is playing a long game. It needs to maintain cash flows and dividends to please its current shareholders while at the same time investing heavily to convert empty parts of its malls into more attractive features.
The collapse of department store chains, in particular, has caused mall owners such as Simon to pour tens of millions of dollars into individual existing malls to reposition those spaces for restaurants, entertainment facilities, coworking spaces, or so on.
Potential mall conversions from retail to apartments would be even more expensive given issues such as plumbing.
Simon is grinding through this period, making defensive moves such as acquiring failing retail stores like JC Penney in order to keep them running at their malls rather than shuttering entirely.
However, this adds risk for Simon on an operational level. Losses could mount in a recession. With higher interest rates and student loan payments restarting, this will pressure Simon at the worst possible time.
Constellation Brands (STZ)
Constellation Brands (NYSE:STZ) is a large alcohol company that sells a variety of spirits, wine and beer products. It also made some ill-fated investments in the cannabis space years ago.
The company’s crown jewel today is its Mexican beer business, specifically the Modelo brands. Constellation gained control of these assets in the early 2010s thanks to antitrust regulators forcing Anheuser-Busch (NYSE:BUD) to divest Modelo as part of a merger.
Constellation has enjoyed a boom in Mexican beer sales in recent years. Corona sales spiked during the pandemic as consumers ironically embraced the brand.
Constellation’s beer labels have gained even more sales thanks to the Bud Light boycott, which has caused many drinkers to switch their buying habits.
However, investors have become way too enamored of STZ stock. Constellation shares are now up to 22 times forward earnings.
That’s a large premium for a beer stock, especially when rival Molson Coors (NYSE:TAP) is at just 12 times forward earnings while also benefitting from the Bud Light boycott.
In the bigger picture, beer is a declining business, and the industry faces profit margin pressures. All this makes STZ stock one to avoid today.
On the date of publication, Ian Bezek held a long position in TAP stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.