Most consumer discretionary businesses succeed or fail based on the broader economy. This sensitive demand profile can cause discretionary stocks to plummet when macro uncertainty enters the fray, and over the past six months, the industry has shed 2.9%. This drop was discouraging since the S&P 500 returned 4.5%.

While some companies have durable competitive advantages that enable them to grow consistently, the odds aren’t great for the ones we’re analyzing today. Taking that into account, here are three consumer stocks we would avoid.

Comcast (CMCSA)

Market cap: $88.6 billion

Formerly known as American Cable Systems, Comcast (NASDAQ: CMCSA) is a multinational telecommunications company offering a wide range of services.

Why Do We Steer Clear of CMCSA?

1. Performance surrounding its domestic broadband customers has lagged its peers
2. Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 4 percentage points over the next year
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

Comcast’s stock price of $24.85 implies a valuation ratio of 7.3x forward P/E. Read our free research report to see why you should think twice about including CMCSA in your portfolio.

Carnival (CCL)

Market cap: $39.79 billion

Boasting outrageous amenities like a planetarium on board its ships, Carnival (NYSE: CCL) is one of the world's largest leisure travel companies and a prominent player in the cruise industry.

Why Are We Out on CCL?

1. Sluggish trends in its passenger cruise days suggest customers aren’t adopting its solutions as quickly as the company hoped
2. Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 1.9 percentage points over the next year
3. Low returns on capital reflect management’s struggle to allocate funds effectively

At $29.36 per share, Carnival trades at 13.2x forward P/E. Check out our free in-depth research report to learn more about why CCL doesn’t pass our bar.

American Outdoor Brands (AOUT)

Market cap: $217.7 million

Spun off from Smith and Wesson in 2020, American Outdoor Brands (NASDAQ: AOUT) is an outdoor and recreational products company that offers outdoor and shooting sports products but does not sell firearms themselves.

Why Should You Sell AOUT?

1. Products and services aren’t resonating with the market as its revenue declined by 7.1% annually over the last five years
2. Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 6 percentage points
3. Improving returns on capital suggest management is identifying more profitable investments

American Outdoor Brands is trading at $17.12 per share, or 32.1x forward P/E. If you’re considering AOUT for your portfolio, see our FREE research report to learn more.

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