Consumer discretionary businesses are levered to the highs and lows of economic cycles. This sensitive demand profile can lead to some stock price volatility, but over the past six months, the industry has stayed on track as its 6.3% return was close to the S&P 500’s.

Although these companies have produced results lately, investors must be mindful because many are fads and only a few will stand the test of time. With that said, here are three consumer stocks we’re passing on.

AT&T (T)

Market Cap: $191.9 billion

Founded by Alexander Graham Bell, AT&T (NYSE: T) is a multinational telecomm conglomerate providing a range of communications and internet services.

Why Should You Sell T?

1. Annual sales declines of 7.6% for the past five years show its products and services struggled to connect with the market
2. Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities

AT&T is trading at $26.45 per share, or 12.2x forward price-to-earnings. To fully understand why you should be careful with T, check out our full research report (it’s free).

Marriott (MAR)

Market Cap: $76.3 billion

Founded by J. Willard Marriott in 1927, Marriott International (NASDAQ: MAR) is a global hospitality company with a portfolio of over 7,000 properties and 30 brands, spanning 130+ countries and territories.

Why Does MAR Worry Us?

1. Revenue per room has underperformed over the past two years, suggesting it may need to develop new facilities
2. Estimated sales growth of 4.2% for the next 12 months implies demand will slow from its two-year trend
3. Earnings growth underperformed the sector average over the last five years as its EPS grew by just 9.2% annually

Marriott’s stock price of $273.68 implies a valuation ratio of 25.9x forward price-to-earnings. If you’re considering MAR for your portfolio, see our FREE research report to learn more.

Movado (MOV)

Market Cap: $435.8 million

With its watches displayed in 20 museums around the world, Movado (NYSE: MOV) is a watchmaking company with a portfolio of watch brands and accessories.

Why Do We Steer Clear of MOV?

1. Sales tumbled by 1.5% annually over the last five years, showing consumer trends are working against its favor
2. Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 14.9% annually, worse than its revenue
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

At $20.10 per share, Movado trades at 0.6x forward price-to-sales. Dive into our free research report to see why there are better opportunities than MOV.

Stocks We Like More

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