Thursday, April 25, 2024
Stocks To Sell

3 Consumer Discretionary Stocks to Sell on Failing Fundamentals

If you’re looking for consumer discretionary stocks to sell, VF Corp. (NYSE:VFC) shareholders might want to reconsider their positions.  

CEO Steve Rendle stepped down as CEO of the apparel conglomerate on Dec. 5. The move, which came as a surprise to many industry experts, suggests that the board increasingly was growing disenchanted with the company’s fundamentals, especially in North America. 

Rendle had been CEO for nearly six years and spent almost 25 years with the company. To step aside without a succession plan in place sounds like a leader who was pushed out rather than a traditional retirement.

With economic uncertainty factoring into corporate decisions, VF can’t be the only consumer discretionary name struggling. According to Yardeni Research, the S&P 500 consumer discretionary sector was down 32.7% year-to-date through Dec. 12. 

A quick screen of consumer discretionary stocks gives me 132 names to choose from. Of those, I’ll only consider stocks down at least 20% YTD. That brings the total down to 42 names.

Here are my three consumer discretionary stocks to sell heading into 2023.

LYV Live Nation Entertainment $70.23
SWK Stanley Black & Decker 78.07
NWL Newell Brands $13.20

Live Nation Entertainment (LYV)

Live Nation Entertainment (NYSE:LYV) is down over 40% YTD. 

When you combine terrible public relations from the Taylor Swift ticket-buying fiasco at its Ticketmaster subsidiary with a Department of Justice (DOJ) antitrust investigation that reportedly opened before November’s brouhaha, Live Nation shareholders might be wise to head for the exits before the Feds decide to crack down on Ticketmaster’s monopoly. 

It’s not a good look.

Ticketmaster and Taylor Swift did say that the pre-sale for her Eras tour sold 2.4 million tickets, the most ever sold for an artist in a single day. Further, the company said that there were 90% fewer tickets sold on secondary resale websites. 

Analysts believe that a DOJ investigation won’t solve the problem of secondary markets.

“From a big picture perspective, the fact that people are wanting to go see live music with this much enthusiasm should be really good for Live Nation in the long term,” stated William Blair analyst Ryan Sundby.

The biggest problem is if the DOJ forces Live Nation to break apart from Ticketmaster because they’ve become completely intertwined.

In Q3 2022, the company’s concert segment generated $5.29 billion in revenue, up from $2.15 billion a year earlier. While concerts accounted for 86% of its overall revenue, it relies on Ticketmaster to handle ticketing for many of its concerts. Ticketing accounted for 8.6% of its overall revenue in the third quarter. 

The company’s third segment is sponsorship & advertising. It accounted for 5.6% of Live Nation’s overall revenue. It works with the other two segments to generate revenue. 

A breakup would hurt all three of the company’s operating segments. Until this issue is sorted, LYV stock will face downward pressure. I would sell before then.

Stanley Black & Decker (SWK)

My wife’s business partner’s favorite power tool brand is DeWalt, which has been owned by Black & Decker since 1960 when it acquired the company from AMF, a conglomerate of the times.

In November 2009, Black & Decker was acquired by Stanley Works for $4.5 billion, and the global tool company following the merger was called Stanley Black & Decker (NYSE:SWK). The all-stock deal saw Stanley shareholders owning 50.5% of the combined company, with Black & Decker’s shareholders owning 49.5%.

In the 12 years since, SWK stock has gained just 36%. Over the same period, the index is up 233%, a more than four-fold gain. 

Value investors will point to the fact that SWK has fallen 63% from its May 2021 all-time high of $225, suggesting the company’s stock is severely oversold. 

Dividend investors will argue that this dividend king — any stock that has increased its dividend for 50 consecutive years or more — has an exceptional 3.9% yield, higher than it’s been since the financial crisis.   

The problem with yield chasing is that it doesn’t fix the main issue with Stanley Black & Decker, which is that its margins are terrible. In the trailing 12 months ended Oct. 1, its gross and operating margins were 27.55% and 5.12%, considerably lower than their five-year averages of 33.90% and 10.43%, respectively.

SWK stock is cheap because its business is a mess. 

Of 19 analysts covering the company, 15 rate it as hold or worse, a sign that Wall Street isn’t convinced the company can fix what ails it. The median target price of $81 is above where it’s currently trading. 

This is not a stock I’d want to own heading into a possible recession.

Newell Brands (NWL)

On two occasions in Newell Brands’ (NASDAQ:NWL) long and sometimes illustrious history, NWL stock has traded higher than $50. The first time was in 1998-1999. The second was in 2016-2017, not too long after announcing their purchase of Jarden in late 2015.

It’s been a miserable time for long-term, buy-and-hold shareholders. It did make a brief recovery midway through 2021, but it’s down 51% since. 

In early December, I suggested that the company still had too many brands on its roster, and that a new CEO is a must if it is to recover from the depths it currently finds itself. 

In 2022, through the first nine months of the fiscal year, Newell’s sales are down 7.8%, while its operating income is off nearly 27%. The situation in the third quarter has accelerated its woes, with revenue and operating income falling 19.2% and 87.5%, respectively.

Worse still, it’s burning through cash. Through the first nine months of 2021, Newell had positive cash flow of $490 million. In 2022, its cash flow is -$567 million through the end of the third quarter. This is nearly $1.1 billion worse than a year ago. 

So, to solve some of its operational deficiencies, it hired a new CFO. His name is Mark Erceg, and he served as CFO for at least four public companies in his 30-year business career. 

The man relishes a challenge. 

The argument for a conglomerate-style business such as Newell has always been that its heft of brands gives it more sway with the Walmarts (NYSE:WMT) and Targets (NYSE:TGT) of the world. However, the truth is that these discount retailers would gladly deal with a standalone Rubbermaid business if that’s what the customers wanted. 

A quick look at Newell’s 10-Q suggests that one or both of its commercial solutions (Rubbermaid) and learning and development (Sharpie, Papermate, EXPO) segments ought to be spun out into their own independent public companies. 

You can own Conglomerate A (Berkshire Hathaway) (NYSE:BRK-A, NYSE:BRK-B) or Conglomerate B (Newell Brands).

I know which one I’d own.

On the date of publication, Will Ashworth 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 Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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