The performance of consumer discretionary businesses is closely linked to economic cycles. Unfortunately, the industry’s recent performance suggests demand may be fading as discretionary stocks have pulled back by 3.3% over the past six months. This drawdown was disheartening since the S&P 500 gained 5.5%.
A cautious approach is imperative when dabbling in these companies as many also lack recurring revenue characteristics and ride short-term fads. Taking that into account, here are three consumer stocks we’re steering clear of.
TEGNA (TGNA)
Market Cap: $3.38 billion
Spun out of Gannett in 2015, TEGNA (NYSE: TGNA) is a media company operating a network of television stations and digital platforms, focusing on local news and community content.
Why Is TGNA Risky?
- Sales tumbled by 2.5% annually over the last two years, showing consumer trends are working against its favor
- Sales are projected to tank by 8.5% over the next 12 months as its demand continues evaporating
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 4.5 percentage points over the next year
At $21 per share, TEGNA trades at 11.3x forward P/E. Dive into our free research report to see why there are better opportunities than TGNA.
Marriott (MAR)
Market Cap: $72.36 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 Fall Short?
- Softer revenue per room over the past two years suggests it might have to invest in new amenities such as restaurants and bars to attract customers
- Anticipated sales growth of 4.6% for the next year implies demand will be shaky
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 8.7% for the last two years
Marriott’s stock price of $273 implies a valuation ratio of 25.2x forward P/E. If you’re considering MAR for your portfolio, see our FREE research report to learn more.
Lucky Strike (LUCK)
Market Cap: $1.38 billion
Born from the transformation of traditional bowling alleys into modern entertainment destinations, Lucky Strike (NYSE: LUCK) operates bowling alleys and other entertainment venues with upscale amenities, arcade games, and food and beverage services across North America.
Why Should You Dump LUCK?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and in-store experience
- Eroding returns on capital suggest its historical profit centers are aging
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Lucky Strike is trading at $9.87 per share, or 32.9x forward P/E. Check out our free in-depth research report to learn more about why LUCK doesn’t pass our bar.
Stocks We Like More
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