There comes a point when investors need to recognize the realities of the equities sector, which is the central theme undergirding the below stocks to sell in a bear market. It’s not about hating on particular companies. Indeed, many of these players offer intriguing business models. Unfortunately, the ground underneath us has changed, necessitating a shift in strategies.
Most notably, the impact of inflation has rippled throughout the entire economy. As the purchasing power of the U.S. dollar erodes rapidly, consumers have little choice but to hunker down as best as possible. For many households, this means reducing discretionary purchases to a minimum, while perhaps buying up essential, non-perishable products. Under this context, some equities will flourish and some will become stocks to sell.
Further, the erosion of purchasing power means that consumer sentiment is down in the dumps. In turn, fewer people will spend money unnecessarily, forcing several companies to cut their workforce. Such actions end up materializing a vicious cycle, which is another reason why folks need to get serious about stocks to sell in a bear market.
Here are seven stocks to sell in a bear market:
|Opendoor Technologies Inc.
|Luminar Technologies, Inc.
|Signet Jewelers Limited
Stocks to Sell: Redfin (RDFN)
One of the most controversial subjects, the soaring housing market of the post-coronavirus period perfectly illustrated the difference between the haves and have-nots. On one end of the spectrum, homeowners were ecstatic at the sudden boost in equity. Of course, on the other end, an increasing number of prospective homebuyers were simply priced out of the market.
Now, with the Federal Reserve appearing committed to tackling inflation, an environment of rising interest rates doesn’t augur well for Redfin (NASDAQ:RDFN), a full-service real estate brokerage. It’s interesting that throughout much of the new normal, Redfin executives were talking up a good game about robust housing demand. But oops, what did management do recently? Did someone say layoffs?
I’ve gotten some criticism regarding the idea of choosing a company like Redfin as one of the stocks to sell in a bear market. Here’s the reality: if housing-related businesses truly felt confident about the underlying sector, they wouldn’t be handing pink slips to their employees.
Take advantage of any near-term pops in RDFN. Overall, I’m staying out of this one.
KB Home (KBH)
If you listened to the mainstream media throughout the new normal, you might be tempted to think KB Home (NYSE:KBH), a homebuilding company, is one of the publicly traded securities to bank on. After all, how many times have we heard about the shortage of homes? With so much demand out there, KBH should be an easy winner.
Except for one problem: there’s a lot of “want” out there, not demand. Let’s just assume that homebuilders — companies that have been in this business for decades — aren’t stupid. If such a massive demand base existed, why wouldn’t they max out their capacities?
Aside from supply chain disruptions, the fundamental headwind is the wealth gap. When you consider the share of total net worth of the middle class versus the same metric for the top 1% of wealth holders, you’ll notice that regular everyday folks are disastrously losing ground.
In other words, KB Home does not have enough clients to sell to because most wealth is now concentrated in the fewest hands. Thus, KBH is relevant, but not at its current premium.
Stocks to Sell: Opendoor Technologies (OPEN)
Yes, I’m picking on real-estate-related companies because that’s what I’m most bearish on at the moment. Even companies that supposedly deliver innovation to an age-old sector, like Opendoor Technologies (NASDAQ:OPEN), are suspect.
Opendoor specializes in iBuying, essentially leveraging digitalization protocols to add greater efficiency and convenience to real estate transactions. On paper, Opendoor sounds like the Amazon (NASDAQ:AMZN) of home buying. Personally, I see it as the Sears (OTCMKTS:SHLDQ) of home buying.
Apparently, most people will own three homes in their lifetime, which I think is an elevated number. Nevertheless, three is a very small transactional number to impart conveniences on. And remember, imparting conveniences on inherently inconvenient matters costs money.
Besides, since real estate is the most important purchase most families will make, rational buyers will eschew speed and convenience for better ensuring the right deal. That’s why I believe OPEN is one of the stocks to sell. The business model might not make sense and certainly, the economic environment is bearish for real estate.
Luminar Technologies (LAZR)
Luminar Technologies (NASDAQ:LAZR) was one of the top performers of the new normal. Specializing in lidar systems that will hopefully pave the way for fully autonomous vehicles, LAZR enjoyed a blistering debut following its reverse merger with a special purpose acquisition company.
When the closing bell rang out on the Jun. 24 session, LAZR stock had lost 2.2%. For the year, it hemorrhaged over 58%. To be clear, Luminar is one of the most compelling leaders in the lidar space. It’s just that in this economic ecosystem, it might not matter.
For instance, quite a few people are still working from home, although that might change. Even so, those who are given an ultimatum by their employers could end up joining the gig economy. Additionally, companies can design their inhouse automated systems as underlying technologies decline in cost. Therefore, competitive pressures could stymie Luminar.
Stocks to Sell: RH (RH)
While the above stocks to sell might ruffle feathers if stakeholders are attached to these names, arguably, I should encounter little resistance with RH (NYSE:RH). Formerly known as Restoration Hardware, RH specializes in upscale home-furnishing products. Throughout much of the new normal, RH flourished as consumers who bought into the housing frenzy also spent big on quality furnishings.
Looking back at the circumstances, however, RH was giving off an early warning signal in August of last year. Shares hit an all-time closing high and from there, a gradual erosion followed by a steep decline throughout the early days of 2022. On a year-to-date (YTD) basis, RH stock has dropped by 50%, although there’s evidence that the magnitude of selling is easing.
Does this mean there’s a chance RH could make a comeback? Although anything is possible, if folks can’t afford their furniture for their new homes, it suggests deeper underlying economic challenges. Also, without stimulus checks to bolster household budgets combined with a lack of homebuyers, RH stock seems questionable.
Signet Jewelers (SIG)
Perhaps most of you will recognize Signet Jewelers (NYSE:SIG) as an obvious candidate for stocks to sell in a bear market. The common image of an economic downturn is that of desperate folks selling anything of value to pawn shops. Under this context, households are not going to spend big on jewelry, which is the ultimate consumer discretionary item.
However, an even darker reason exists to explain why SIG may be one of the top stocks to sell in a bear market. Research from Bowling Green State University indicates that “Economic conditions are linked to marriage patterns—increases in the unemployment rate are associated with reduced odds of marriage.”
If you have reduced odds of marriage if the economy enters a recession, you’re logically going to see reductions of revenue at Signet Jewelers and its ilk. Otherwise, I don’t have anything against Signet. It’s just that investors should recognize the harsh realities of our present circumstances.
Stocks to Sell: Dillard’s (DDS)
An upscale department store chain, Dillard’s (NYSE:DDS) was a shocker of an investment this year. While its peers like Macy’s (NYSE:M) suffered significant losses, Dillard’s enjoyed relative success. After some choppy sessions, DDS stock is up nearly 4% YTD, which is not bad considering the major indices are down double digits over the same period. Still, I think luck will run out for Dillard’s.
Again, like many of the other stocks to sell in a bear market, I don’t have anything against the company. It’s just that we need to recognize broader realities. As the Wall Street Journal and other publications pointed out, consumer sentiment is at a record low. A few positive blips here and there aren’t going to change the overall narrative.
Essentially, you have the double whammy of the dollar losing its purchasing power and employers — particularly in the high-paying tech space — laying off their workers. To me, it’s almost inevitable that demand for consumer discretionary items will fall, boding poorly for DDS stock.
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.