As soaring inflation continues to impose a dark cloud over American families, the Federal Reserve seemingly had little choice but to lift the benchmark federal funds rate, which effectively raises borrowing costs. However, this action also sucks the incentivization out of growth-oriented businesses, meaning that some companies will invariably represent stocks to sell. It’s not personal, it’s just monetary policy.
The latter point is especially important if you’re going to continue reading this pessimistic piece on stocks to sell. Inherently, with arguably most Americans preferring optimism over pessimism, the idea of giving up on investments arouses strong emotions. I get that. However, with the paradigm shift in monetary policy — that being the recent 75 basis point hike in the benchmark interest rate — investors must acknowledge reality.
In short, higher borrowing costs shine a glaring spotlight on big-ticket items. We’re talking homes, cars, planes, boats — yes, even the mighty blockchain. Basically, anything that forces the average person or enterprise to borrow funds to acquire, it’s going to be suspect.
With this context in mind, here are stocks to sell that investors should at least consider trimming.
|Bed Bath & Beyond
D.R. Horton (DHI)
Heading into the start of August, D.R. Horton (NYSE:DHI) isn’t exactly acting like one of the stocks to sell. For the week ended July 29, DHI gained 2.5%, mere days following the Fed’s rate hike announcement. Further, over the trailing month, shares are up nearly 18%. What’s going on here?
Fundamentally, investors might point to speculation that, per the Wall Street Journal, Fed chair Jerome Powell may be considering a slowdown in the monetary tightening policy. That would imply a normalization of the economy, which would be good for D.R. Horton’s homebuilding business.
Also, DHI could be responding to good ole fashioned contrarian trading. I’m talking about the reactionary impulse of treating bad news as good news.
However, I believe the overriding narrative for DHI is the rise of cancellations for new home orders. It’s not just about the cancellations. Throughout 2021, people were willing to outbid each other to the financial death. Now, folks don’t want to touch homes with a 10-foot pole.
Reading between the lines, DHI is one of the housing stocks to sell.
Speaking of reading between the lines, the next name on this list of stocks to sell is Redfin (NASDAQ:RDFN). Per a recent report by CNBC, June home sales fell 5.4% from May, according to a monthly report from the National Association of Realtors. Now, some experts believe that this dynamic simply represents a normalization of home-buying behaviors to pre-pandemic norms. I see it a little differently.
If you look at the purchasing power of the U.S. dollar, you’ll notice that strength in the currency eroded by 12.92% from the start of the Covid-19 pandemic through June of this year. Roughly equivalent to 13 cents on the dollar, that’s going to translate to about a $9,000 loss for a median household income of $70,000.
Even worse, purchasing power eroded by 6% in all of 2021 but faded by 5.3% just in the first half of 2022. Translation? Inflation has picked up to double time, imposing a severe headwind on would-be homebuyers.
It’s an affordability crisis that may worsen before it gets better. This makes RDFN another one of the housing market stocks to sell.
When it comes to used cars (or even new cars for that matter), I can clearly see both sides of the issue. On the intuitive front, rising borrowing costs make big-ticket items like vehicle purchases incredibly problematic for many consumers. But on the other side of the spectrum, most Americans still need cars. Should most companies recall their workers into physical offices — a non-zero probability — vehicle miles traveled will increase.
Further, the Wall Street Journal reported that the average age of vehicles on U.S. roadways hit a record 12.2 years. Clearly, inflation is taking a toll on many households, meaning that people are doing whatever they can to keep their rides intact. However, once an old car gives out, you often have to replace it. So, a company like Carvana (NYSE:CVNA) might seem like a mixed bag.
However, for CVNA, what I keep coming back to is the convenience angle. Carvana ships your new-to-you set of wheels right to your front door. However, that convenience arrives at a premium. Not surprisingly, Carvana has also burned a lot of cash, making its balance sheet rather precarious. Thus, CVNA is one of the best automotive sector stocks to sell.
While consumer-level purchases — namely residential real estate and used vehicles — saw frenetic activity, even the billionaire market got in on the madness. Here, the craze was for business jets. With supply chain disruptions associated with Covid-19 taking a toll on business jet inventory, the well-heeled began scooping up whatever planes were available. Theoretically, this dynamic boded well for Bombardier (OTCMKTS:BDRBD).
However, just like in retail consumer-facing markets, some normalization of supply and demand occurred, cooling some of the frenetic behavior. Indeed, Reuters reported earlier this year that the supply of pre-owned jets saw an uptick, giving prospective buyers more options. Combined with the fact that borrowing costs are rising, buying a business jet today is a much less appealing proposition.
Further, Bombardier isn’t exactly attracting investors with its financial performance. In 2021, when peak jet-buying was occurring among billionaires, Bombardier posted revenue of $6.09 billion, down 6.2% from the prior year’s tally. As well, in the first quarter of 2022, its sales of $1.25 billion are down 7% year-over-year.
If Bombardier couldn’t get it done last year, higher borrowing costs probably won’t help. Therefore, BDRBD is one of the best plane stocks to sell.
Perhaps one of the ultimate status symbols, buying a boat communicates that you’ve truly arrived, in large part because the purchase is arguably unnecessary. Unless you’re a seasoned sailor intent on traveling the high seas, chances are, purchasing a boat is a purely discretionary affair. That may be fine during a period of cheap money. However, with rising interest rates, MarineMax (NYSE:HZO) seems risky.
To be fair, the boat dealership enjoyed an outstanding showing for its fiscal year ended Sept. 30, 2021, posting $2.06 billion in sales. This represented a growth rate of nearly 37% YOY. As well, in the quarter ended March 31, 2022, its sales of $610 million are up nearly 17% against the year-ago level.
My concern regarding the boat dealership is that boats are usually money pits. Moreover, Business Insider emphasized the point. “The truth is, boats are mostly giant money pits for the vast majority of people who own them. Worse, they are money pits that depreciate in value at lightning speed.”
Again, when money is cheap, status-boosting luxury purchases make a little bit more sense. When money is expensive, the opposite is true. Thus, HZO is a boating sector stock to sell.
Bed Bath & Beyond (BBBY)
Irrespective of higher interest rates, retailer Bed Bath & Beyond (NASDAQ:BBBY) has long been a problem. On a year-to-date basis, shares have plunged nearly 67%. Over the trailing five-year period, BBBY has given up 83% of its market value. If that wasn’t enough, its lifetime performance since its 1992 initial public offering has only resulted in a 370% return.
One of the factors that now is becoming an alarming problem is cash burn. In its fiscal year ended February 2022, Bed Bath & Beyond posted a loss of $336 million for its free cash flow line. As of the most recent quarter ended May 31, 2022, FCF is negative to the tune of $488 million. Also in this quarter, the company’s balance sheet shows cash of only $108 million.
“Bed Bath & Beyond is in a world of hurt because they have burned an enormous amount of available cash, their business has no forward momentum, and now as we all know they have an enormous leadership gap that they will have to fill,” stated Mark Cohen, Columbia University professor of retail studies and former long-time CEO of Sears Canada, in an interview with Yahoo Finance.
Riot Blockchain (RIOT)
Personally, I’ve been a big-time proponent of cryptocurrencies and the blockchain concept, writing several articles about the subject on InvestorPlace before it was the cool thing to do. I continue to write about the topic on a weekly basis, providing analysis for what I believe will happen based on market rumblings and technical trends.
It’s important for me to bring this up because I don’t take any kind of pleasure in saying that Riot Blockchain (NASDAQ:RIOT) is one of the stocks to sell. Interestingly, if you’re a speculative swing trader, it’s very possible to make money off of RIOT should you time your entries and exits correctly. For instance, in the trailing month, RIOT is up 75%.
However, on a YTD basis, shares are down nearly 68%. Therefore, RIOT is a vehicle for speculation; it’s not appropriate for investors (at this moment) so people who are profitable are better off considering it to be one of the stocks to sell.
Essentially, the framework for sustained speculation has taken a hit because of rising interest rates. That’s going to impact crypto valuations and thus, by logical deduction, downwind mining operations.
On the date of publication, Josh Enomoto did not have (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.