7 Stocks to Sell When Consumer Confidence Is Falling

Stocks to sell

An economic recession is looking increasingly likely and it’s time to look around for stocks to sell.

A majority of economists (72%) polled by the National Association of Business Economics say they expect the U.S. to enter a recession by the middle of next year.

By some measures, the U.S. is already in a recession, popularly defined as two consecutive quarters of negative economic growth. This is bad news for consumers and businesses.

Consumers, who are already feeling the impact of inflation that is running at 8.5% and higher interest rates used to dampen it are likely to batten down the hatches should the economy turn negative and companies begin mass layoffs.

There are already signs that consumers are beginning to roll over. According to the U.S. Commerce Department, consumer spending rose a tepid 0.1% in June after falling 0.3% in May.

Should things worsen on the consumer front, it could spell bad news for the economy overall, and also for certain stocks that are reliant on robust consumer spending to keep their share prices elevated. Here are seven stocks to sell when consumer confidence is falling.

TSLA Tesla  $891.29
SPG Simon Property Group $106.68
DRI Darden Restaurants $127.68
GPS The Gap $9.91
LUV Southwest Airlines $37.80
MA Mastercard $339.71
MGM MGM Resorts International $34.67

Tesla (TSLA)

Source: University of College / Shutterstock.com

Tesla (NASDAQ:TSLA) is so closely associated with its chief executive, Elon Musk, and technology that it’s easy to forget the company makes and sells electric vehicles.

Consumers tend to place big ticket items on the backburner when they are feeling uncertain about the economy or their personal finances. Tesla’s vehicles are among the most expensive. The company’s lowest-priced Model 3 retails for an average of $44,900. The range-topping “Performance” Model 3 sells for nearly $60,000. Those are the types of prices that scare off nervous consumers.

For a lot less money, environmentally-conscious consumers can get themselves into a brand new Toyota (NYSE:TM) Prius ($28,000) or a Ford (NYSE:F) Escape hybrid SUV ($32,000).

The prospect of slowing sales helps to explain why Tesla has been increasing its prices this year, most recently announcing that it will raise the price of its full self-driving assistance software by 25% this September.

In June, the company hiked the prices of its electric vehicles across the entire line-up, raising prices an average of $6,000 per vehicle model. The cost of its long-range Model X SUV now approaches $140,000. These are not the types of expenses consumers shell out for during hard times.

Year to date, TSLA stock is down 26% at $885 a share. The stock is scheduled to split on a 3-for-1 basis on Aug. 25, which may give it a pop and you a chance to get out at a profit.

Simon Property Group (SPG)

Source: Jonathan Weiss / Shutterstock.com

While not a household name, Simon Property Group (NYSE:SPG) is the largest operator of shopping malls in the U.S.

The real estate investment trust owns 232 shopping malls and outlet centers that, together, comprise approximately 241,000,000 square feet of retail nirvana.

Simon Property Group has weathered many economic cycles over the years, but its business tends to decline whenever America enters a recession. When the economy is bad, consumers spend less time shopping at the mall and spend less money on frivolous things, concentrating their hard-earned dollars on consumer essentials.

Simon Property also took some big blows during the Covid-19 crisis when its malls and outlets were either forced to close entirely or operate under capacity restrictions. The company’s earnings declined nearly 30% during the pandemic and it was forced to help bailout bankrupt retailers such as J. Crew, Forever 21, and J.C. Penny to help keep its malls occupied during the downturn.

The prospects of an economic recession do not bode well for Simon Property Group, which makes it one of the stocks to sell before they tank. Its recovery from Covid-19 has been slow.

Darden Restaurants (DRI)

Source: Shutterstock

Investors might want to avoid Darden Restaurants (NYSE:DRI) stock. Darden Restaurants operates popular restaurant chains such as The Olive Garden and LongHorn Steakhouse and is among the more risky stocks to sell now.

The company currently has 1,800 restaurant locations and 175,000 employees, making it the world’s biggest full-service restaurant operator.

Darden Restaurants suffered during the pandemic and is only now starting to recover.

DRI stock is currently trading, 6% higher than before Covid-19, but a recession could certainly upend its business. Indeed, many restaurant stocks sold off heavily ahead of their most recent earnings.

This was in anticipation of the impact high inflation would have on their results, including Darden.

Confidence in the company’s stock was also shaken recently by reports that Darden’s chief executive officer (CEO), Ricardo Cardenas, sold 1,945 shares of DRI stock worth $236,025. Other shareholders may want to follow Cardenas’ lead.

The Gap (GPS)

Source: Shutterstock

Clothing retailers such as The Gap (NYSE:GPS) tend to perform badly when the economy turns south and are prime candidates for stocks to sell.

The same can be said of other stocks such as Ralph Lauren (NYSE:RL), Abercrombie & Fitch (NYSE:ANF), and Foot Locker (NYSE:FL).

Inflation already is taking a toll on GPS stock. Year-to-date, the share price is down 46%.

The company announced last month that CEO Sonia Syngal was stepping down “effective immediately.” This could have contributed in part to the underperformance of GPS stock.

Syngal had only been the head of Gap since March 2020 when the pandemic started. Her departure might have been hastened by the fact that the retailer posted a net loss of $162 million in the three-months ended April 30. That’s compared with a profit of $166 million a year earlier.

Revenue in the quarter declined 13% to $3.48 billion from a year ago. The Gap has said that global supply chain issues and slumping sales have hurt it financially. Expect things to get worse if the economy really tanks.

Southwest Airlines (LUV)

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Concerns about inflation, rising interest rates, and the outlook for the economy are the main reasons why Southwest Airlines (NYSE:LUV) is among the best airline stocks to sell now.

When people are having trouble affording their mortgage or putting gas in their cars, they are less likely to fly to the Caribbean or Florida for a vacation.

LUV stock is down 14% so far in 2022 and 35% lower than where it was prior to March 2020.

Southwest recently reported second-quarter earnings per share of $1.30 on record revenues of $6.7 billion, beating Wall Street forecasts across the board.

However, LUV stock fell immediately following the earnings print on weaker-than-expected forward guidance. Plus, the company said its full-year 2022 available seat miles are likely to be down 4% from a year ago.

While travel across the U.S. remains strong this summer, things could turn negative quickly if consumer confidence is shaken.

Mastercard (MA)

Source: Alexander Yakimov / Shutterstock.com

Slowing consumer spending means less revenue for Mastercard (NYSE:MA).

Many consumers rely on their credit cards when traveling, booking flights and hotels and dining in restaurants. Any slowdown in those activities could spell disaster for Mastercard.

The stock already is down 8% this year.

Coming out of the pandemic, Mastercard has been seeing steady improvements. The company reported second quarter revenues rose 21% to $5.5 billion. This was ahead of analysts’ estimates of $5.26 billion.

Mastercard said its earnings per share for the three months ended June 30 amounted to $2.56. This was up 31.3% from a year earlier and ahead of Wall Street forecasts of $2.36 per share.

While the earnings have been impressive, Mastercard’s fortunes could quickly become gloomy if consumers wait out a recession.

MGM Resorts International (MGM)

Source: Michael Neil Thomas / Shutterstock.com

In good times, when consumers are feeling flush, MGM Resorts International (NYSE:MGM) performs well. But when consumer confidence plunges, so too do revenues and MGM stock.

MGM Resorts’ share price is down 24% this year, trading where it was pre-pandemic.

Increasingly, MGM Resorts is pushing into sports wagering through its “BetMGM” brand. But here too, revenues are dependent on consumers feeling confident.

People are less likely to take risks when they are feeling financially constrained and have less money to play with.

The company reported net revenues of $960 million in this year’s second quarter. That’s an increase of 12% over last year due largely to an increase in business volumes. But will people continue visiting Las Vegas and Atlantic City should the economy turn sour? I wouldn’t bet on it.

Disclosure: On the date of publication, Joel Baglole 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.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

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