Most consumer discretionary businesses succeed or fail based on the broader economy. Over the past six months, it seems like demand trends are working against their favor as the industry has tumbled by 8.2%. This drawdown was worse than the S&P 500’s 2.9% loss.
A cautious approach is imperative when dabbling in these companies as many also lack recurring revenue characteristics and ride short-term fads. On that note, here are three consumer stocks we’re steering clear of.
The New York Times (NYT)
Market Cap: $8.52 billion
Founded in 1851, The New York Times (NYSE:NYT) is an American media organization known for its influential newspaper and expansive digital journalism platforms.
Why Should You Sell NYT?
- Demand for its offerings was relatively low as its number of subscribers has underwhelmed
- Projected sales growth of 6% for the next 12 months suggests sluggish demand
- Eroding returns on capital suggest its historical profit centers are aging
At $52.06 per share, The New York Times trades at 25x forward price-to-earnings. Read our free research report to see why you should think twice about including NYT in your portfolio.
Adtalem (ATGE)
Market Cap: $3.96 billion
Formerly known as DeVry Education Group, Adtalem Global Education (NYSE:ATGE) is a global provider of workforce solutions and educational services.
Why Do We Think Twice About ATGE?
- Lackluster 8.2% annual revenue growth over the last two years indicates the company is losing ground to competitors
- Estimated sales growth of 6.4% for the next 12 months implies demand will slow from its two-year trend
- Low returns on capital reflect management’s struggle to allocate funds effectively
Adtalem’s stock price of $106.26 implies a valuation ratio of 17.1x forward price-to-earnings. To fully understand why you should be careful with ATGE, check out our full research report (it’s free).
Verizon (VZ)
Market Cap: $185.8 billion
Formed in 1984 as Bell Atlantic after the breakup of Bell System into seven companies, Verizon (NYSE:VZ) is a telecom giant providing a range of communications and internet services.
Why Is VZ Risky?
- Customer additions have disappointed over the past two years, indicating the company’s value proposition may not be resonating
- Free cash flow margin is forecasted to shrink by 2.2 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Verizon is trading at $44 per share, or 9.3x forward price-to-earnings. If you’re considering VZ for your portfolio, see our FREE research report to learn more.
Stocks We Like More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Axon (+711% five-year return). Find your next big winner with StockStory today for free.