After a great deal of legal wrangling, it appears that the battle over student loan forgiveness has drawn to a close. And this news has put three stocks to sell squarely in the line of fire going forward.
As things stand now, it appears that student loans will begin accruing interest again starting in September. Payments will be due again starting in October. After a three-year moratorium on payments given the COVID-19 disruption to the economy, the return of these payments could have a substantial impact on the economy, and especially for millennial and Gen-Z focused businesses.
Some analysts have suggested that this could trigger a stock market and housing market crash. That’s certainly possible depending on how the chips fall. In any case, it’s quite likely that these three stocks to sell will be hit hard as student loan payments get going again.
Robinhood (HOOD)
Robinhood Markets (NYSE:HOOD) could be the epicenter of the upcoming shock from this change.
That’s because younger users love Robinhood. Its easy-to-use app and relatable way of presenting investing appeal to many clients. It’s also easy to fund small accounts at Robinhood, whereas many brokers have higher restrictions around opening new accounts. Combine with clever marketing tactics such as giving new users a free share of a random stock, and Robinhood took off in the early 2020s.
That fit perfectly with the student loan moratorium. A recent Wall Street Journal report noted that a surprisingly high 57% of people between ages 18 and 25 have at least one investment. Much of this was likely funded with money that would have otherwise gone to repaying education-related debts.
Robinhood has plenty of issues already. Shares trade far below its all-time highs as the company continues to lose money. Its effort to broaden the business into things such as retirement accounts haven’t moved the needle around overall profitability. And the loss of many younger traders could be the last straw for HOOD stock. It’s certainly worth considering adding HOOD to your list of stocks to sell ahead of payments resuming.
Coinbase (COIN)
The Wall Street Journal article also pointed to cryptocurrency as another beneficiary of the student loan payment moratorium. And it intuitively makes sense. Unexpected meme plays such as Dogecoin (DOGE-USD) took off in 2021, right as young people were enjoying the government relief checks and the student loan pause.
Now, though, the mood has shifted. Inflation has hit younger consumers hard. The relief checks ran out a long time ago. And now the bill has come due for college as well. All this speaks to a client base over at Coinbase (NASDAQ:COIN) that is likely to have less spare cash to spend on any hot new cryptocurrencies.
And even if cryptocurrency did pick back up, it’s unclear if Coinbase will be able to benefit in a big way. That’s because the government has cracked down hard on more speculative tokens, yield farming, unregistered crypto securities, and so on. All this makes crypto investments less compelling, especially at a time when consumers are tightening their belts to deal with student loan payments.
Dutch Bros (BROS)
Dutch Bros (NYSE:BROS) is a coffee shop aimed at younger consumers. Management realized that Starbucks (NASDAQ:SBUX) appealed more to millennial customers and that younger patrons were seeking a different experience.
Dutch Bros’ formula of tiny stores focused on drive-through and higher-sugar beverages with unique flavors has made it a winner. Sales have skyrocketed and the company enjoyed a successful IPO.
However, inflation and a potentially weakening economy could hit Dutch Bros. The firm’s trajectory has slowed, with Dutch Bros showing rather pedestrian 3.8% same-store revenue growth last quarter. That’s barely keeping up with inflation and speaks to a potentially tapped customer base.
Dutch Bros is continuing to grow its revenues at a frenetic pace, but that’s coming largely from its breakneck rate of opening new stores. That could run into issues if the economy enters a recession, especially with younger consumers struggling. The forthcoming resumption of student loan payments is likely to divert a decent chunk of people’s discretionary income from fun items like coffee to debt repayments. That could hit BROS stock hard.
On the date of publication, Ian Bezek 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.
