The performance of consumer discretionary businesses is closely linked to economic cycles. This sensitive demand profile can cause the industry to underperform when macro uncertainty enters the fray, and over the past six months, its returns were flat while the S&P 500 climbed by 16.9%.
While some companies have durable competitive advantages that enable them to grow consistently, the odds aren’t great for the ones we’re analyzing today. On that note, here are three consumer stocks we would avoid.
Disney (DIS)
Market Cap: $182.3 billion
Founded by brothers Walt and Roy, Disney (NYSE: DIS) is a multinational entertainment conglomerate, renowned for its theme parks, movies, television networks, and merchandise.
Why Do We Pass on DIS?
- Annual sales growth of 9.2% over the last five years lagged behind its consumer discretionary peers as its large revenue base made it difficult to generate incremental demand
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 10.3% for the last two years
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
At $105.28 per share, Disney trades at 13.8x forward P/E. If you’re considering DIS for your portfolio, see our FREE research report to learn more.
Hilton (HLT)
Market Cap: $70.25 billion
Founded in 1919, Hilton Worldwide (NYSE: HLT) is a global hospitality company with a portfolio of hotel brands.
Why Are We Out on HLT?
- Revenue per room has underperformed over the past two years, suggesting it may need to develop new facilities
- Operating margin of 22.3% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
- Free cash flow margin is projected to show no improvement next year
Hilton is trading at $311.73 per share, or 31.9x forward P/E. To fully understand why you should be careful with HLT, check out our full research report (it’s free).
Marcus & Millichap (MMI)
Market Cap: $1.15 billion
Founded in 1971, Marcus & Millichap (NYSE: MMI) specializes in commercial real estate investment sales, financing, research, and advisory services.
Why Do We Avoid MMI?
- Products and services aren’t resonating with the market as its revenue declined by 1.5% annually over the last five years
- Free cash flow margin is forecasted to shrink by 7.3 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Marcus & Millichap’s stock price of $30.30 implies a valuation ratio of 45.9x forward P/E. Check out our free in-depth research report to learn more about why MMI doesn’t pass our bar.
Stocks We Like More
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+214% between June 2020 and June 2025). Find your next big winner with StockStory today.
