3 Stocks to Avoid as Long as Inflation Is Running Hot


  • With inflation outpacing rate cuts, offload these stocks to avoid during inflation to navigate a resilient U.S. economy.
  • Estee Lauder (EL): Despite a legacy of beauty dominance, EL’s 2024 projections dip below expectations, signaling caution for investors.
  • Coinbase (COIN): COIN’s bloated valuation and insider sales wave suggest a rocky road ahead.
  • Pool Corporation (POOL): With revenues dropping each quarter, POOL’s lofty forward earnings multiple hints at limited growth potential amid tightening inflationary pressures.
Stocks to Avoid During Inflation - 3 Stocks to Avoid as Long as Inflation Is Running Hot

Source: Olga Moonlight / Shutterstock

The U.S. economy has proven more resilient than investors would’ve hoped, making stocks to avoid inflation relevant for the foreseeable future.

The discussion on reducing interest rates seems to have dulled down following a disheartening February inflation report. Core U.S. inflation came in hotter-than-expected for the second straight month, driven by massive price hikes in airfare and clothing, among other items.

That hasn’t gone too well with the Federal Reserve, with Governor Christopher Waller reiterating the lack of urgency in cutting interest rates following the disappointing inflation data. He feels he needs to see “at least a couple months of better inflation data” before slashing rates. Therefore, we’d have to wait before the Fed gains confidence that inflation is on a path toward its 2% target. With that said, investors need to be cautious in avoiding these three stocks to avoid inflation, among others.

Estee Lauder (EL)

An Estee Lauder retail store at Elements Shopping Mall in Hong Kong.
Source: Sorbis / Shutterstock.com

Estee Lauder Companies (NASDAQ:EL) is one of the most popular cosmetics businesses throughout history, dating back over 75 years. It boasts a portfolio of two dozen brands selling skin care, makeup, perfume, and hair care products.

2023 was a forgettable year for its business, marked by crippling inflation, which significantly added to production costs. Moreover, the drop in consumer spending power weighed down operating results further in the hotly competitive beauty and skincare market.

The company’s future doesn’t look too bright either, amidst belt-tightening efforts and downbeat guidance. Despite beating analyst expectations in its fiscal second-quarter (Q2) report, it posted a somber third-quarter (Q3) forecast, which fell short on both lines. For the full year, it expects $2.08 to $2.23 per share in profits, lagging behind market expectations of $2.33 per share. To improve its bottom-line performance, the company is looking to cut costs, laying off 5% of its staff as possible. Hence, it’s best to remain on the sidelines with EL stock.

Coinbase (COIN)

COIN stock Coinbase logo on screen with Bitcoin coins
Source: 24K-Production / Shutterstock.com

Popular cryptocurrency exchange platform Coinbase (NASDAQ:COIN) saw its shares skyrocket last year with the surge in Bitcoin (BTC-USD) prices. COIN stock shot up a mammoth 321% last year and has continued its fine form into 2024. However, gains have slowed substantially since the recent shakeup in the crypto market.

COIN stock’s close correlation with BTC prices makes it vulnerable to unpredictability in the crypto space. Though its bulls would direct attention toward the potential for top-line expansion and business evolution, the volatility in COIN stock makes it remarkably unattractive, especially at current prices, where COIN stock trades at a dumfounding 712 times trailing-twelve-month (TTM) earnings. No wonder insiders continue selling COIN stock front and center, raising concerns over future prospects. Consequently, analysts estimate a 28% downside from current price levels.

Pool Corporation (POOL)

Source: Shutterstock

Pool Corporation (NASDAQ:POOL) is the largest swimming pool supplies, equipment, and related outdoor living products wholesaler. Though it experienced exceptional growth during the pandemic, recent quarterlies suggest revenues are normalizing. This is shown by the double-digit drop in sales over the past four consecutive quarters.

Its most recent quarterly showing was marked by an 8.5% drop in revenues on a year-over-year (YOY) basis to $1 billion, missing estimates by $16.5 million. Moreover, its 2024 guidance indicates a potential 2% decrease in diluted EPS, with the lower end of the forecast dropping below 2023’s actual numbers. Adjusted EPS also shows a downward trend, portraying a pessimistic outlook for the current year.

However, it trades over 30 times forward earnings, offering little upside, with inflation gnawing at its margins. TipRanks gives it a consensus ‘hold’ rating, with a 3% downside estimate from current prices.

On the date of publication, Muslim Farooque did not have (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.

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.

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