- We have been in a bear market since the beginning of 2022, making these stocks dangerous.
- United Airlines (UAL): Reconsider rosy outlooks from a month ago around UAL.
- MGM Resorts International (MGM): Lagging indicators suggest things will get worse for MGM.
- Penn National Gaming (PENN): Penn National doesn’t look better no matter what analysts say.
- Expedia (EXPE): Experian’s second quarter is far different than Q1 and EXPE stock will suffer for it.
- Norwegian Cruise Lines (NCLH): All cruise lines are stunted again as fuel and oil prices continues to increase.
- Capri Holdings (CPRI): Luxury should weather a crisis better, but its not happening with Capri Holdings as CPRI stock is weakening.
- Darden Restaurants (DRI): Olive Garden and Longhorn Steakhouse are already reeling from price sensitivity.
First things first, let’s define a bear market in order to understand the current state of the stock market. By definition, a bear market is reached when markets decline by 20% from their previous all-time high. That means that U.S. markets officially entered bear territory on June 13 when the S&P 500 closed 21% lower than its all-time high on Jan. 3.
In other words, the bear market began on Jan. 3 and became official upon closing 20% lower on June 13. If the stock market is the barometer for the economy then you haven’t been wrong in feeling like 2022 is weak.
In any case, investors should react to the news and do what they can to protect themselves and their assets. That means avoiding or getting rid of the worst performers before they can cause damage. That’s why investors should avoid or drop the stocks listed below.
|MGM||MGM Resorts International||$29.17|
|PENN||Penn National Gaming||$31.02|
|NCLH||Norwegian Cruise Lines||$11.45|
United Airlines (UAL)
Investors should steer clear of United Airlines (NASDAQ:UAL) stock now that a bear market has officially been called. That despite the fact that things were looking much better just over a month ago.
It was then that United Airlines management stated that it expected passenger revenue to rise as much as 25% in Q2 over 2019 levels. That strongly implied that demand for flights was well beyond pre-pandemic levels and that United could begin to pay down some of the debt it incurred as daily cash burn skyrocketed with planes grounded.
But I would expect investors to reconsider that notion as more become aware that this is indeed a bear market. Consumers are likely to begin tightening the purse strings as the expectation of a worsening market sets in. That means lower overall spending on leisure and lower potential revenues for United Airlines.
MGM Resorts International (MGM)
MGM Resorts International (NYSE:MGM) stock has proven very volatile over the past week. It has even had days where it jumps up more than 10%. That could make it appear very attractive. But I wouldn’t bet on it based on the notion that casino stocks can continue to weather the overall downturn.
Casino stocks in general have taken a hit during the pandemic thus far. That’s true even as revenues remain high in a sort of post-pandemic rebound.
MGM’s Q1 revenues reached $2.9 billion, 73% higher than the $1.6 billion it posted a year earlier. That was a strong signal that leisure spending had returned. But investors should consider that while reservations have yet to experience a slowdown, discretionary spending on casino games and services has.
That could be a result of customers deciding to take previously planned trips yet also deciding to be increasingly frugal as inflation continues unabated.
Penn National Gaming (PENN)
The same potential lag between post-pandemic enthusiasm and the realities of persistent inflation plague Penn National Gaming (NASDAQ:PENN) stock.
Penn National’s revenues increased 23% in the first quarter, reaching $1.56 billion, and slightly outperforming expectations. Analysts including Stifel’s Steven Wieczynski believe that Penn’s geographical diversification helps it relative to other peer stocks.
True, Penn National operates 44 properties in 20 states, online sports betting in 13 jurisdictions and iCasinos in 5, but it remains true that investing in gambling stocks on the precipice of a recession is unwise.
My impression is that Penn National is just as likely to be affected as any other casino. That same report above provides anecdotal evidence that spending on gaming has been most impacted. That should mean that Penn National should suffer more, not less.
Investors shouldn’t expect Expedia (NASDAQ:EXPE) to continue to turn around. That means they should avoid its shares currently.
Like most all travel firms, Expedia experienced a resurgence in Q1. Revenues surged 81% year-over-year to reach $2.25 billion in the quarter. But it wasn’t enough to send EXPE stock moving upward perhaps because the company recorded a $122 million net loss despite rebounding revenues.
Expedia is pretty much at the heart of leisure travel in many regards. Consumers who want to book travel know Expedia can help them. But given that we’re in a bear market, leisure demand is not going to be as strong as it was in Q1.
Consumers likely believed that inflation might be transitory in Q1. It isn’t and we all know it now. That should stifle Expedia’s progress toward earnings again and make it a stock to avoid.
Norwegian Cruise Lines (NCLH)
Norwegian Cruise Lines (NYSE:NCLH) is just like the other leading cruise lines: It has a plan to resume service predicated upon a return to normal. Unfortunately, normal likely implies a reasonably healthy economy.
But this isn’t a healthy economy. Instead, it is teetering on the edge of a recession. That means Norwegian Cruise Lines should expect revenues to decline as discretionary spending declines.
Add to that, fuel and oil prices that are soaring and cruise companies are sitting in a perfect storm…again.
Norwegian Cruise Lines has suffered from low capacity throughout the pandemic rendering its business model unsustainable. That led to massive, sustained losses. Those losses were still substantial in Q1 when monthly cash burn rate sat at $375 million.
Capri Holdings (CPRI)
Capri Holdings (NYSE:CPRI) is the parent stock behind luxury brands including Michael Kors and Versace. Despite the notion that luxury brands should fare better due to higher discretionary budgets among higher earners, CPRI stock is still a sell.
The reason is that Capri Holdings recently gave weak guidance moving forward. Wall Street was expecting the company to post EPS figures of $1.45 on revenues of $1.35 billion. However, Capri management is telegraphing weaker projections of per share earnings of $1.35 on revenues of $1.3 billion.
If that holds true it will be a big disappointment as Capri Holdings had bested earnings expectations in each of the last four quarters. Further, high-income discretionary spending isn’t immune to economic trouble and the worse things get, the more even the rich will have to adjust.
Darden Restaurants (DRI)
Darden Restaurants (NYSE:DRI) is the parent company and stock behind Olive Garden, Longhorn Steakhouse, and several other casual dining chains.
The problem is that inflation seems to be taking its toll as customer counts for casual dining restaurants fell 3% through the 3 months ended June 12. Sales increased 4.4% in the period as chains were able to pass on higher prices to their consumers.
CEO Rick Cardenas notes that the effects of those higher prices are beginning to impact the company’s lower-priced chains. In other words, Olive Garden and Longhorn Steakhouse. That price sensitivity hasn’t begun to impact its more expensive chain restaurants but it won’t matter as profits and revenues are likely to suffer whether higher-end chains are affected or not.
On the date of publication, Alex Sirois 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.