Avoid These  Expensive And Vulnerable Stocks, According To Trade Algo Analysts

Consumer spending is likely to turn negative over the coming months following "a series of rolling recessions" and Wolfe Research has identified several stocks that investors may want to steer clear of in the months ahead as a result.

‍

There is a firm expectation that the Federal Reserve will continue to raise interest rates higher, and for a longer period, than what the consensus expects. During the current peak of the current hiking cycle, housing and tech stocks (including crypto, software, and cloud services) have experienced deep downturns, and industrial stocks are on their way to a contraction.

‍

The big question ahead is whether consumer spending (which makes up 70% of the GDP) will be the next shoe to drop, according to Wolfe analyst Chris Senyek in a note he sent to clients Tuesday. “While it is not likely that consumer spending will fall off a cliff (at least over the near term), we do expect real consumption growth in the U.S. in full-year 2023 to turn negative and disappoint compared to consensus expectations looking for growth of 1.1%."

‍

Most of these stocks have highly volatile gross margins, so they will be vulnerable to disappointing consumer spending in the quarters ahead. Wolfe developed a list of stocks he believes are expensive and likely to underperform their peers "in the quarters ahead."

‍

With a 51% gross margin volatility, Hyatt Hotels is among the most vulnerable, and one of the most expensive, with a price-to-earnings ratio of 43x earnings, Hyatt Hotels is also one of the most expensive companies.

‍

It is followed in terms of gross margin volatility by Peloton, with a volatility of 31%.

‍

The most expensive stock on the list is Tesla, which has earnings multiple of 46x, which is the highest on the list. There is a 13% volatility in its gross margin. Tesla is also being slammed by others on Wall Street that are also looking to slow it down. There was a reaffirmation of Bernstein's underperform rating on Tesla stock on Wednesday, while it was also taken off a Goldman Sachs list of hedge funds' top picks.

‍

At 26% and 25%, respectively, DraftKings and Las Vegas Sands are also near the top of the list for gross margin volatility in terms of gross margins. With a P/E ratio of 35 times earnings, the latter is also considered to be expensive.

‍

A number of food stocks were also flagged by Wolfe, including Tyson Foods, a producer of hot dogs and chicken, Lamb Weston, which processes potatoes, and Pilgrim's Pride, which produces poultry.

‍

Clorox and GameStop were also mentioned.

‍