There comes a point when investors need to recognize the realities of the equities sector, which is the central theme undergirding the stocks to sell in a bear market below. It’s not about hating on particular companies. Indeed, many of these players offer intriguing business models. Unfortunately, though, the ground underneath us has changed, necessitating a shift in strategies.
Most notably, the impact of inflation has rippled throughout the entire economy. As the purchasing power of the U.S. dollar erodes, consumers have little choice but to hunker down as best as possible. For many households, this means reducing discretionary purchases to a minimum, while perhaps buying up essential, non-perishable products. Under this context, some names will flourish while others become stocks to sell.
Further, the erosion of purchasing power means that consumer sentiment is down in the dumps. That means less people will spend money unnecessarily, forcing several companies to cut their workforces. These actions make up a vicious cycle, another reason why folks need to get serious about stocks to sell in a bear market.
So, without further ado, here are seven stocks to sell in a bear market:
Stocks to Sell: Redfin (RDFN)
The soaring housing market of the post-pandemic period perfectly illustrated the difference between the haves and have-nots. On one end of the spectrum, homeowners were ecstatic at the sudden boost in equity. But on the other end, an increasing number of prospective homebuyers became simply priced-out of the market.
Now, with the Federal Reserve committed to tackling inflation, an environment of rising interest rates doesn’t look good for Redfin (NASDAQ:RDFN), a full-service real estate brokerage. It’s interesting that, throughout much of the new normal, Redfin executives were talking up a good game about robust housing demand. But what did management do in June? Did someone say layoffs?
I’ve gotten some criticism for choosing a company like Redfin as one of the stocks to sell in a bear market. But here’s the reality: If housing-related businesses truly felt confident about the underlying sector, they wouldn’t be handing pink slips to their employees.
Take advantage of any near-term pops in RDFN stock. Overall, I’m staying out of this one.
KB Home (KBH)
You might be tempted to think KB Home (NYSE:KBH), a homebuilding company, is one of the publicly traded securities to bank on right now. After all, how many times have we heard about the shortage of homes? With so much demand out there, KBH stock should be an easy winner.
Except for one problem: There’s a lot of “want” out there, not demand. Let’s just assume that homebuilders — companies that have been in this business for decades — aren’t stupid. If such a massive demand base existed, why wouldn’t they max out their capacities?
Aside from supply-chain disruptions, the fundamental headwind here is the wealth gap. When you consider the share of total net worth of the middle class versus the same metric for the top 1% of wealth holders, you’ll notice that regular everyday folks are disastrously losing ground.
In other words, KB Home does not have enough clients to sell to because most wealth is now concentrated in fewer hands. Because of that, KBH stock is relevant, but not at its current premium.
Stocks to Sell: Opendoor Technologies (OPEN)
Yes, I’m picking on real-estate-related companies because that’s what I’m most bearish on at the moment. Even companies that supposedly deliver innovation to an age-old sector, like Opendoor Technologies (NASDAQ:OPEN), are suspect right now.
Opendoor specializes in iBuying, essentially leveraging digitalization protocols to add greater efficiency and convenience to real-estate transactions. On paper, Opendoor sounds like the Amazon (NASDAQ:AMZN) of home buying. Personally, though, I see it more like Sears (OTCMKTS:SHLDQ).
Apparently, most people will own three homes in their lifetime. That’s a very small transactional number to impart conveniences on. And remember, imparting conveniences on inherently inconvenient matters costs money.
Besides, since real estate is the most important purchase most families will make, rational buyers will eschew speed and convenience for better ensuring the right deal. That’s why I believe OPEN tock is one of the stocks to sell. The business model may not make sense and certainly, the economic environment is bearish for real estate right now.
Luminar Technologies (LAZR)
Luminar Technologies (NASDAQ:LAZR) was one of the top performers of the new normal. Specializing in lidar systems hoping to pave the way for fully autonomous vehicles, LAZR stock enjoyed a blistering debut following its reverse merger with a special purpose acquisition company.
Now so far this year, however, LAZR is down by more than 45%. To be clear, Luminar is one of the most compelling leaders in the lidar space. It’s just that, in this economic ecosystem, that might not matter.
For on, quite a few people are still working from home, although that may change. Additionally, automotive companies will be able design their own in-house self-driving systems as underlying technologies decline in cost. Therefore, competitive pressures could also stymie Luminar.
Stocks to Sell: RH (RH)
The above stocks to sell might ruffle some stakeholders’ feathers. However, I should encounter little resistance with RH (NYSE:RH) stock. Formerly known as Restoration Hardware, RH specializes in upscale home-furnishing products. Throughout much of the new normal, the company flourished as consumers who bought into the housing frenzy also spent big on quality furnishings.
Looking back at the circumstances, however, RH gave off an early warning signal in August 2021. Shares hit an all-time closing high and from there, saw a gradual erosion followed by a steep decline throughout the early 2022. On a year-to-date (YTD) basis, RH stock is down more than 50%, although there’s evidence that the magnitude of selling is easing.
Does this mean there’s a chance RH could make a comeback? Anything is possible. But if folks can’t afford furniture for their new homes, there are some deeper underlying economic challenges at play. Also, without new stimulus checks to bolster household budgets — plus a lack of homebuyers in the first place — RH stock seems questionable.
Signet Jewelers (SIG)
Most readers may see Signet Jewelers (NYSE:SIG) as an obvious candidate for stocks to sell in a bear market. After all, in an economic downturn, households are not going to spend big on jewelry, the ultimate consumer discretionary item.
There’s another reason why SIG stock may be one of the top stocks to sell in a bear market, however. According to research, “economic conditions are linked to marriage patterns.” Basically, climbing unemployment is “associated with reduced odds of marriage.”
With reduced odds of marriage as the economy nears a recession, Signet Jewelers will logically see reductions in revenue. That aside, I don’t have anything against Signet. But investors should still recognize the harsh realities of today’s market.
Stocks to Sell: Dillard’s (DDS)
An upscale department store chain, Dillard’s (NYSE:DDS) has been a shocker of an investment this year. As peers like Macy’s (NYSE:M) suffer significant losses, Dillard’s has enjoyed relative success. Currently, DDS stock is up 18% YTD — not bad considering major indices are down by double digits over the same period. Still, I think luck will run out for Dillard’s.
Again, like many of the other stocks to sell in a bear market, I don’t have anything against the company. It’s just that we need to recognize broader realities. As the Wall Street Journal points out, consumer sentiment remains low. A few positive blips here and there won’t change the overall narrative.
Essentially, you have the double whammy of the dollar losing its purchasing power and employers — particularly in the high-paying tech space — laying off workers. To me, it’s practically inevitable that demand for consumer discretionary items will fall. That bodes poorly for DDS stock.
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On the date of publication, Josh Enomoto 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.