The performance of consumer discretionary businesses is closely linked to economic cycles. Unfortunately, the industry’s recent performance suggests demand may be fading as discretionary stocks have pulled back by 1% over the past six months. This drawdown is a far cry from the S&P 500’s 16.3% ascent.
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’re steering clear of.
American Airlines (AAL)
Market Cap: $8.69 billion
One of the ‘Big Four’ airlines in the US, American Airlines (NASDAQ: AAL) is a major global air carrier that serves both business and leisure travelers through its domestic and international flights.
Why Are We Bearish on AAL?
- Performance surrounding its revenue passenger miles has lagged its peers
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $13.12 per share, American Airlines trades at 31.2x forward P/E. Read our free research report to see why you should think twice about including AAL in your portfolio.
Forestar Group (FOR)
Market Cap: $1.33 billion
As a majority-owned subsidiary of homebuilding giant D.R. Horton, Forestar Group (NYSE: FOR) develops and sells finished residential lots to homebuilders, focusing primarily on land acquisition and development for single-family homes.
Why Is FOR Risky?
- Number of lots sold averaged -18.6% growth over the past two years and imply healthy demand for its products
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Forestar Group’s stock price of $26.03 implies a valuation ratio of 9.5x forward P/E. Dive into our free research report to see why there are better opportunities than FOR.
Performance Food Group (PFGC)
Market Cap: $14.47 billion
With a massive network spanning 155 distribution centers and delivering over 250,000 different food products, Performance Food Group (NYSE: PFGC) distributes food and food-related products to over 300,000 restaurants, convenience stores, theaters, and institutions across North America.
Why Are We Out on PFGC?
- Products are reaching more customers as its unit sales averaged 6.9% growth over the past two years
- Low free cash flow margin of 1.3% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Returns on capital are growing as management invests in more worthwhile ventures
Performance Food Group is trading at $91.84 per share, or 16.3x forward P/E. To fully understand why you should be careful with PFGC, check out our full research report (it’s free).
Stocks We Like More
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.
