Changing consumer behaviors can and often do cause upheaval for entire sectors of the economy. For example, newspapers and bookstores can’t keep their heads above water because of the internet. Similarly, the advent of music downloads has largely made music stores (yes, millennials, those actually existed in large numbers) extinct.
Smartphones, of course, eventually caused the feature phones from Nokia (NYSE:NOK) and BlackBerry (NYSE:BB) to become obsolete. And many types of retailers were destroyed by Amazon (NASDAQ:AMZN) and the big-box retailers. Netflix (NASDAQ:NFLX) streaming ultimately finished off DVD rentals at Blockbuster.
In my opinion, the worst move long-term investors can make is buying stock in companies whose products or services are facing obsolescence due to changing consumer behaviors. That’s because, as you can see from the historical examples I cited, these firms often crash and burn. Here are three highly prevalent consumer behaviors and some of the consumer stocks to sell in response to them.
Dieting Is Becoming More Prevalent
I believe that the pandemic caused consumers to become more worried about being overweight. That’s because obese people were far more likely to be hospitalized or die as a result of catching Covid than those who were not. That fact made it easy for consumers to internalize that being obese is unhealthy and dangerous. Supporting my contention, 52% of Americans 18 to 34 years old said they attempted to diet in the past year. More to the point, “43% of women have recently dieted, compared to… 34% of men,” Mind on Nutrition reported last October.
More recently, the release of new weight-loss drugs has made eating less and avoiding unhealthy foods such as high-calorie sodas, french fries and pastries much easier for those who can afford the treatments.
Given all of these points, I recommend avoiding the stocks of companies that specialize in marketing unhealthy foods. Among the consumer stocks to sell in the latter category are Coca-Cola (NYSE:KO), Krispy Kreme (NASDAQ:DNUT), Hershey (NYSE:HSY) and Pepsi (NYSE:PEP).
Movie Theater Attendance vs. the Streaming Revolution
In 2023, U.S. movie ticket revenue was 31% lower than in 2019. And that’s despite average ticket prices last year being 18% higher than they were four years ago, according to industry site The Numbers. Even though there were no more lockdowns and the release of popular films like Barbie, Oppenheimer and Taylor Swift’s concert movie made for summer blockbusters, the sector was not rescued nor restored to its former glory.
The streaming revolution proved to be too intense for such a rebound to occur. Consumers became used to watching movies at home during the pandemic. Given the huge volume of movies available at very cheap prices, it’s difficult to see how that trend will reverse. Indeed, as I pointed out in a previous column, “The amount of video streamed by Americans surged 21% last year to an equivalent of 21 million years.”
Given those points, I recommend that investors avoid Disney (NYSE:DIS) and AMC (NYSE:AMC). Disney is partly dependent on theater attendance and AMC wholly relies upon it. Although Disney also has a streaming business, its streaming offerings are not yet profitable. Its movie business, on the other hand, has historically generated a great deal of profits for the firm.
Fossil fuels are on the way out
In my opinion, long-term investors should not touch oil stocks, since the electric vehicle (EV) revolution has made the risk-reward ratio for oil negative.
While U.S. EV adoption is lagging, in other countries they are taking huge amounts of market share away from gas-powered vehicles. Add in plug-in hybrids that use much less gasoline than conventional automobiles and the situation becomes dire.
In 2023, EVs and plug-in hybrids accounted for about 45% of total auto sales in the EU. The market share of those vehicles is expected to rise to similar levels in China this year. Even in the U.S., EVs and plug-in hybrids together accounted for a sizeable 9% share of all vehicles sold last month.
Moreover, EV market share is likely to keep trending higher. As more chargers are added, more EVs become available, prices trend lower and technology upgrades make for better batteries, the EV industry will prosper.
Among the most prominent oil stocks to avoid are Chevron (NYSE:CVX), Exxon (NYSE:XOM) and Occidental (NYSE:OXY).
On the date of publication, Larry Ramer 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.
