It’s a complicated time for the U.S. economy. For retail companies that peddle non-essential and luxury goods, that’s not good news. This trend has been slowly building for months. In February 2024, consulting giant McKinsey & Company published a report on the state of consumer spending in the U.S., which revealed that many Americans were still exercising caution with their purchases. Now, months later, these trends have accelerated, as evidenced by steep declines in spending at companies such as Starbucks (NASDAQ:SBUX) and McDonalds (NYSE:MCD). But even as the economic outlook for many remains questionable, these aren’t necessarily the most important stocks to sell.
Discretionary spending has impacted more sectors than food service and retail. Roblox’s (NASDAQ:RBLX) first-quarter earnings report shows that the video game producer is battling lower player spending on its platform. That alone doesn’t bode well for companies in the gaming sector, but AMC Entertainment (NYSE:AMC) reported falling movie attendance, indicating bigger problems for the broader entertainment industry. If consumers are spending less money on coffee, it isn’t surprising that they’d be scaling back their entertainment budgets. But for investors, this means time to scale back on companies in the space.
Stocks to Sell: AMC Entertainment (AMC)
Today’s performance tells investors everything they need to know about AMC. The struggling theater chain beat Wall Street estimates on both adjusted earnings-per-share (EPS) and revenue, although the latter declined year-over-year by 0.31%. However, shares are still falling today because the company reported a statistic that should be concerning to investors. As InvestorPlace‘s Eddie Pan reports:
“AMC stock is sinking lower due to a weak attendance figure. U.S. attendance was 30.49 million, reflecting a yearly decline of 5.8%. That contributed to total attendance falling by 2.1% to 46.63 million. International markets attendance offset some of the decline by rising 5.8% to 16.14 million.”
Prior to this report, AMC’s future looked questionable enough. The company hasn’t been able to find a lucrative niche, as evidenced by the fact that AMC stock is down more than 93% for the past year. It operates in an era in which consumers clearly no longer spend as much time or money at the movies. InvestorPlace contributor Will Ashworth notes that AMC hasn’t benefited from moviegoer loyalty, and now we know why; any previous loyalty is clearly declining. AMC’s fiercely loyal retail investor base will likely dispute this, but the numbers don’t lie. Attendance is down, and so is AMC stock. Neither one is likely to recover.
GameStop (GME)
If a list of stocks to sell includes AMC, the other leading meme stock probably won’t be far behind. GameStop (NYSE:GME) still benefits from an occasional retail trading frenzy, as we saw last week when GME stock rose unexpectedly. But investors should remember that meme stock surges are always temporary and shouldn’t instantly be seen as a reason to double down on shares. That’s especially true for GameStop, as Roblox’s muted spending forecast news calls to mind that interest in gaming is down. If movie theaters are feeling the sting of discretionary spending cuts, video game producers and retailers will be in for the same treatment.
As InvestorPlace contributor Larry Ramer reports, Wall Street sentiment toward GME has been sharply trending downward lately and for good reason. At its core, GameStop is a plastic disc retailer and right now, that’s not a good market to be in. Meme stock momentum can prompt quick surges, but it can’t make the stock a good buy.
Stocks to Sell: Tesla (TSLA)
Unlike the other meme stocks to sell on this list, Tesla (NASDAQ:TSLA) is still an industry-leading company. At least it used to be. Competition in the electric vehicle (EV) market is heating up, leading to more affordable options for buyers seeking to go electric. Additionally, the recent trend of layoffs has cast further doubt over Tesla’s growth prospects, even as the company makes progress with its autonomous driving technology. However, in an economy where consumers are spending cautiously, expensive luxury EVs aren’t a great product to be selling. As InvestorPlace contributor Tyrik Torres reports:
“Tesla has struggled throughout 2024 to increase deliveries, and automaker continues to suffer decreasing market share in China. During the first quarter, Tesla delivered 386,810 vehicles while Wall Street expected 449,080. This decline not only represents a sequential one from the fourth quarter of 2023 but also a year-over-year decrease from the same period in 2023.”
Clearly, buyers aren’t enthusiastic about purchasing Teslas. This is also evidenced by the fact that demand is rising for hybrid vehicles and falling for EVs. While the market is likely to slowly recover within the coming months, that doesn’t mean TSLA stock will enjoy the ride. Right now, it’s hard to be optimistic about such a volatile stock when economic conditions are clearly working against it.
On the date of publication, Samuel O’Brient 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.
