Consumer discretionary businesses are levered to the highs and lows of economic cycles. Lately, it seems like demand trends have worked in their favor as the industry has returned 18.1% over the past six months, outpacing S&P 500 by 4 percentage points.
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. Taking that into account, here are three consumer stocks we’re passing on.
Wyndham (WH)
Market Cap: $5.45 billion
Established in 1981, Wyndham (NYSE: WH) is a global hotel franchising company with over 9,000 hotels across nearly 95 countries on six continents.
Why Do We Pass on WH?
- Weak revenue per room over the past two years indicates challenges in maintaining pricing power and occupancy rates
- ROIC of 12% reflects management’s challenges in identifying attractive investment opportunities, and its shrinking returns suggest its past profit sources are losing steam
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $72.12 per share, Wyndham trades at 15.1x forward P/E. If you’re considering WH for your portfolio, see our FREE research report to learn more.
Acushnet (GOLF)
Market Cap: $4.90 billion
Producer of the acclaimed Titleist Pro V1 golf ball, Acushnet (NYSE: GOLF) is a design and manufacturing company specializing in performance-driven golf products.
Why Are We Out on GOLF?
- Lackluster 10.1% annual revenue growth over the last five years indicates the company is losing ground to competitors
- Low free cash flow margin of 7.2% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Acushnet’s stock price of $83.62 implies a valuation ratio of 21.2x forward P/E. Dive into our free research report to see why there are better opportunities than GOLF.
American Airlines (AAL)
Market Cap: $9.78 billion
One of the ‘Big Four’ airlines in the US, American Airlines (NASDAQ: AAL) is a major global air carrier that serves both business and leisure travelers through its domestic and international flights.
Why Do We Steer Clear of AAL?
- Sluggish trends in its revenue passenger miles suggest customers aren’t adopting its solutions as quickly as the company hoped
- Free cash flow margin is expected to remain in place over the coming year
- High net-debt-to-EBITDA ratio of 7× increases the risk of forced asset sales or dilutive financing if operational performance weakens
American Airlines is trading at $14.79 per share, or 8.5x forward P/E. If you’re considering AAL for your portfolio, see our FREE research report to learn more.
Stocks We Like More
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
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