3 Consumer Stocks to Sell in January Before They Crash and Burn
If you’re looking for consumer stocks to avoid, look no further than the ProShares Online Retail ETF (NYSEARCA:ONLN).
As its name implies, the ETF tracks the performance of the ProShares Online Retail Index, a collection of retailers that sell their products online or through other non-brick-and-mortar channels.
In 2023, the ETF generated a total return of 27.4%, 120 basis points better than the SPDR S&P 500 ETF Trust (NYSEARCA:SPY). Before you purchase some shares of ONLN, consider that over the past five years, it’s trailed the S&P 500 ETF by 12.22% annually. ONLN is as volatile as it comes.
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ONLN has just 19 holdings. Many of the names are popular with retail investors. However, it’s a bet on Amazon (NASDAQ:AMZN), which accounts for 24.1% of the fund’s net assets.
Two of the three holdings I’m recommending investors avoid had considerable gains in 2023. The other did not. All of them are consumer stocks to avoid in 2024.
Consumer Stocks to Avoid: Wayfair (W)
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The Boston-based online furniture and home goods retailer had a good year in 2023. Its shares were up 88%.. However, since it went public in October 2014 at $29 a share, investors who bought in the IPO and still hold have generated a compound annual growth rate of 7.2%, 265 basis points less than the S&P 500.
Since it finished 2023, it’s already lost nearly 11%. You couldn’t ask for a more volatile stock to own.
I’ve never liked Wayfair (NYSE:W) because it sells all kinds of stuff that nobody needs that they can’t get in their hometowns. But worse than that, it doesn’t know how to make money.
And just when I thought it couldn’t get any worse, CEO and co-founder Niraj Shah dumped on his employees just days before Christmas. Bah, humbug.
“Nicholas Bloom, a professor of economics, told CNN’s Richard Quest in an interview Thursday [Dec. 21, 2023] that ‘if Wayfair wants to run a business where people work 80 hours a week, he’s going to have to put up their salaries by 50% to pay them for it,” CNN Business reported.
“‘I don’t see this as being successful for the typical employee,’ Bloom said, noting that the jobs market is strong and employees have options.”
According to S&P Global Market Intelligence, since Wayfair went public in 2014, on only one occasion did it generate a GAAP profit, which was $185 million in 2020. Overall, it’s lost $4.3 billion in the past decade through Sept. 30, 2023, on many billions in revenue.
With all the stocks investors can put their money into, I don’t get why anyone would touch Wayfair.
Chewy (CHWY)
Source: Chie Inoue / Shutterstock.com
Of the three stocks on my list, Chewy (NYSE:CHWY) represents the most significant position in ONLN with a 4.12% weighting. Its shares lost 36% in 2023.
Chewy is another pandemic stock that benefited from a surge in companion animals and the purchasing that goes along with pet ownership. It traded upwards of $120 in February 2021. It hit an all-time low of $16.53 in October.
Investors have since driven the share price higher in the final two months of the year when everything moved higher, and the U.S. market delivered a Q4 2023 return of 12.08%.
Chewy is another stock that needs help making money.
In the five years it’s been a public company – its IPO was June 13, 2019, at $22 a share – the online retailer has a cumulative loss of $637.4 million, according to S&P Global Market Intelligence.
In the 39 weeks ended Oct. 29, 2023, it earned $5.3 million on $8.3 billion in revenue. It’s not a trainwreck like Wayfair, but its net income is still down significantly from the same period in 2022.
At least in Chewy’s case, it generates positive cash from its operations, which is essential if it wants to stick around.
Carvana (CVNA)
Source: Eric Glenn / Shutterstock.com
Carvana (NYSE:CVNA) rose from the dead in 2023, gaining 1,117% last year and making some speculators very wealthy. However, the real money was made by those who bought in the March 2020 correction below $30 and sold in August 2021 above $360. I doubt there are many of those folks still around.
Investors in 2024 will have to decide whether its gains last year were nothing more than a dead cat bounce or something sustainable. I’m going with the former.
Two things happened in 2023 that helped juice its share price.
First, the online buyer and seller of used vehicles restructured about $5.5 billion of its unsecured debt – its maturities stretched from 2025 through 2030 – slashing more than $1.3 billion of its debt and extending maturities out three years to between 2028 and 2031. The move saved $455 million in annual interest expenses in 2024 and 2025.
However, as a result of the restructuring, S&P Global Ratings downgraded Carvana’s Issuer credit rating to “D” from “CC” and its senior unsecured debt to “D” from “C.”
That means that Carvana bought itself some time, but that’s about the extent of it.
The second benefit was a 70% jump in gross profit per unit in the third quarter to nearly $6,000. As a result, its Q3 2023 gross profit was $482 million, 34% higher than a year earlier, on 18% less revenue.
That’s some trick. However, most of its pre-tax income in the first nine months of 2023 ($377 million vs. a loss of $1.45 billion a year earlier) is from drastic cuts to its selling, general, and administrative expenses (36% reduction).
Carvana appears to be smoke and mirrors. I’d avoid it.
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 InvestorPlace.com Publishing Guidelines.
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