In this article, we discuss 10 stocks in trouble as Americans cut back on spending. If you want to see more stocks in this list, check out 5 Stocks In Trouble as Americans Cut Back on Spending.
The New York Times reported on June 29 that consumer spending in Q1 2022 grew only 0.5%, compared to a growth of 0.6% in the same period last year and the government’s estimates of 0.8%. The slower domestic spending is yet another hit to the spiraling US economy. The inflation-adjusted GDP contracted 0.4% in the first quarter, and some market analysts believe that the GDP will shrink in Q2 as well, which is a common indicator of an economic recession.
According to a Reuters report dated June 29, consumer spending grew at a 1.8% rate rather than the 3.1% forecasted in May. There were significant cutbacks in spending on recreation, financial services, insurance, and healthcare. The automobile sector also suffered from slower consumer spending. In addition to that, inventories notably piled up, specially in the general merchandise and retail space. Retail giants Walmart and Target also reported surplus inventories as a result of softer consumer spending.
Amid macro uncertainty and slowed consumer spending, many prominent market contenders are impacted in terms of sales volume, revenues, and profitability. Some of the stocks in trouble as Americans cut back on spending include Target Corporation (NYSE:TGT), NIKE, Inc. (NYSE:NKE), and General Motors Company (NYSE:GM).
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We selected these stocks based on recent analyst ratings that suggest that slowed consumer spending has had an impact on these firms. These companies belong to sectors that were reportedly hit by weaker consumer spending, including automobiles, consumer discretionary, recreation, and retail. We have arranged the list according to the hedge fund sentiment around the stocks, which was measured from Insider Monkey’s Q1 database of 900+ elite hedge funds.
Stocks In Trouble as Americans Cut Back on Spending
10. Leggett & Platt, Incorporated (NYSE:LEG)
Number of Hedge Fund Holders: 15
Headquartered in Carthage, Missouri and founded in 1883, Leggett & Platt, Incorporated (NYSE:LEG) is a manufacturer of residential bedding and furniture, automotive seating, and industrial materials. Since purchasing mattresses and furniture is a discretionary expense and can be easily delayed, UBS analyst Atul Maheswari remains bearish on the sector as of June 10 and observed that sales are likely to remain “sluggish” till labor day.
On June 14, Piper Sandler analyst Peter Keith lowered the price target on Leggett & Platt, Incorporated (NYSE:LEG) to $36 from $40 and maintained a Neutral rating on the shares. Piper's May mattress retailer survey reported a sharp decline of 15%, indicating a prominent year-over-year fall from April at down 10%, the analyst told investors. The analyst believes a soft Memorial Day weekend "portends a challenged backdrop for the coming months".
Among the hedge funds tracked by Insider Monkey, 15 funds reported long positions in Leggett & Platt, Incorporated (NYSE:LEG) at the conclusion of Q1 2022, compared to 21 funds in the preceding quarter. Jim Simons’ Renaissance Technologies held the largest position in the company, with 713,700 shares worth about $25 million.
In addition to Target Corporation (NYSE:TGT), NIKE, Inc. (NYSE:NKE), and General Motors Company (NYSE:GM), Leggett & Platt, Incorporated (NYSE:LEG) is one of the stocks that is impacted by slowed consumer spending.
9. Brunswick Corporation (NYSE:BC)
Number of Hedge Fund Holders: 37
Brunswick Corporation (NYSE:BC) is an Illinois-based firm that operates in the recreational marine industry. The company owns multiple prominent boating brands. On June 27, investment advisory Baird said powerboat sales will notably slow down on the back of thin inventory, interest rate hikes, rising fuel costs, and deteriorating consumer sentiment.
Riley analyst Eric Wold lowered the price target on Brunswick Corporation (NYSE:BC) on June 21 to $101 from $120 and maintained a Buy rating on the shares. The analyst slashed price targets across outdoor leisure and entertainment names to account for the "rapidly changing" economic environment and consumer spending behavior. He thinks internal company issues could be made worse by the declining consumer outlook.
According to Insider Monkey’s database for the first quarter of 2022, Brunswick Corporation (NYSE:BC) was part of 37 hedge fund portfolios, down from 42 funds in the last quarter. William Von Mueffling’s Cantillon Capital Management is the leading shareholder of the company, with more than 4 million shares valued at $333.4 million.
8. Burlington Stores, Inc. (NYSE:BURL)
Number of Hedge Fund Holders: 38
Burlington Stores, Inc. (NYSE:BURL) is an American retailer that provides off-price clothes, furniture, home decor items, pet supply, and gifts. On June 22, Cowen analyst John Kernan downgraded Burlington Stores, Inc. (NYSE:BURL) to Market Perform from Outperform, lowering the price target to $175 from $209. The stock has declined more than 50% from its highs, but he does not believe that it is "cheap enough to defend here" as his EPS estimates are behind consensus into FY23. The inventory levels in the stores are dwindling and the financial status of the low income consumers is declining as inflation rises, observed the analyst.
Among the hedge funds tracked by Insider Monkey, 38 funds were bullish on Burlington Stores, Inc. (NYSE:BURL) at the end of March 2022, with collective stakes worth $1.11 billion, compared to 39 funds in the earlier quarter, holding stakes in the company valued at $2.3 billion. Phill Gross and Robert Atchinson’s Adage Capital Management is the biggest position holder in the company, with 2.32 million shares worth $423.70 million.
“Burlington is a leading off-price retailer offering an assortment of apparel, footwear, home, beauty and toys. Shares have risen as investors are increasingly optimistic the company will benefit from higher consumer spending this year with the US economy expected to reopen. In addition to this cyclical tailwind, we believe the company has several internal drivers and a relatively new CEO is spearheading. These include growing its store footprint through smaller formats (~30,000 square feet versus ~50,000 square feet) as it adapts to the evolving brick-and-mortar retail landscape, and closing its sizable margin gap with peers TJ Maxx and Ross by strengthening its merchant team, purchasing inventory items in-season (reacting to sales trends in real time) and reducing store inventory levels (fewer markdowns, higher merchandise margins).”
7. eBay Inc. (NASDAQ:EBAY)
Number of Hedge Fund Holders: 44
eBay Inc. (NASDAQ:EBAY) is a California-based multinational e-commerce company. UBS analyst Kunal Madhukar on June 28 downgraded eBay Inc. (NASDAQ:EBAY) to Neutral from Buy with a price target of $48, down from $60. According to the analyst, the company's non-core segments are deteriorating and while its Focus categories are performing better, they consist of "purely discretionary spend" that could be disproportionately affected in an economic downturn. The analyst warns that eBay Inc. (NASDAQ:EBAY)’s 2022 GMV is positioned to fall about 17% year-over-year, which is below the guidance of a 14%-16% decline and the Street forecasts of 15%.
According to Insider Monkey’s Q1 data, 44 hedge funds reported long positions in eBay Inc. (NASDAQ:EBAY), with combined stakes worth $1.60 billion, compared to 53 funds in the preceding quarter, with collective stakes in the company valued at $2.05 billion. Harris Associates is the biggest shareholder of eBay Inc. (NASDAQ:EBAY), with 4.8 million shares worth about $279 million.
Here is what Steel City Capital had to say about eBay Inc. (NASDAQ:EBAY) in its Q4 2020 investor letter:
“eBay (Long): EBAY continues to be a core holding in the Partnership’s long book despite not having any “sexy” attributes or unknown catalysts. I like EBAY because it checks the boxes of being both capital light and priced as a value stock (low multiple of free cash flow), factors which are attractive in a potentially inflationary environment.
In 3Q’20 the company printed $2.6 billion of revenue vs. guidance of $2.4 billion (a $200 million beat) while full year revenue guidance was taken up by $400 million, implying 4Q’20 would be higher by $200 million as well. Free cash flow from continuing ops was guided to $2.3 billion for the full year, slightly above the $2.0 billion the business regularly generated before getting a Covid/stimulus related boost.
EBAY will have about $4.6 billion of cash on hand at year end 5 and should receive another $2.0 billion in after-tax proceeds this quarter related to the sale of its Classifieds portfolio 6. Additionally, the company will receive 540 million shares from Adevinta which are currently valued at ~$8.3 billion, and also holds a warrant to purchase a 5.0% stake in payment processor Adyen which was last valued at ~$775 million. Additional asset sales are also not out of the question 7. Backing everything out at today’s market cap of $38.2 billion gives a clean market cap for the core marketplace of $22.6 billion. At a minimum, I expect $2.0 billion of free cash flow in FY’21, with the potential for a higher figure to the extent the incoming administration is successful in cutting additional stimulus checks. By FY’22, free cash flow should ramp to $2.3 billion after incorporating a full year’s contribution from the managed payments initiative. This values EBAY at 9.6x free cash flow, or 11.7x excluding stock-based comp.”
6. Peloton Interactive, Inc. (NASDAQ:PTON)
Number of Hedge Fund Holders: 44
Peloton Interactive, Inc. (NASDAQ:PTON) is a New York-based company that provides stationary bicycles, treadmills, fitness classes, and subscriptions. Evercore ISI analyst Shweta Khajuria on June 17 lowered the price target on Peloton Interactive, Inc. (NASDAQ:PTON) to $14 from $20 and reiterated an In Line rating on the shares. As indicated by survey results and industry data points, the analyst believes consumer demand for at-home fitness equipment is soft, with the potential for continued weakness through this year. Thus, she slashed fiscal 2023 and 2024 revenue and EBITDA estimates for Peloton Interactive, Inc. (NASDAQ:PTON), driven by lower Connected Fitness net additions.
According to Insider Monkey’s database, 44 hedge funds reported bullish positions in Peloton Interactive, Inc. (NASDAQ:PTON) at the end of March 2022, down from 60 funds in the last quarter. Philippe Laffont’s Coatue Management is the leading shareholder of the company, with 8.6 million shares worth $227.5 million.
Like Target Corporation (NYSE:TGT), NIKE, Inc. (NYSE:NKE), and General Motors Company (NYSE:GM), Peloton Interactive, Inc. (NASDAQ:PTON) has been hit as Americans cut back on spending amid macro pressures.
Here is what Horos Asset Management has to say about Peloton Interactive, Inc. (NASDAQ:PTON) in its Q1 2022 investor letter:
“What about the other asset class that has attracted the most attention from the investment community in recent times? Peloton Interactive is the other company whose valuations we did not understand and whose share price has also declined drastically in the last year and a half.”
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Disclosure: None. 10 Stocks In Trouble as Americans Cut Back on Spending is originally published on Insider Monkey.