The recent rising tide of the market has lifted all boats. In light of recent macro developments, investors have become optimistic. Not only high-quality stocks have run up. Low-quality stocks, including today’s top retail stocks to sell, have rallied as well.
In fact, many of the names in this category have delivered outsized gains during this timeframe. “Meme stock mania” has made a partial return, sending several of the past popular meme plays — a number of which happen to retailers — up to substantially higher prices since the start of January. Even some retail stocks typically not regarded as meme plays have zoomed considerably higher.
However, investors’ “risk on” mindset may not last for long. Despite the recent optimism, inflation and rising interest rates may continue to weigh on stocks.
If the market pivots back to “risk-off” mode and their underlying fundamentals continue to worsen, these seven retail stocks to sell may give back their recent gains, and then some. Consider exiting the names below while the going is still good.
|BBBY||Bed Bath & Beyond||$3.05|
Bed Bath & Beyond (BBBY)
Since the start of the year, “meme mania” has returned to Bed Bath & Beyond (NASDAQ:BBBY). Shares have rallied 21.5% year to date despite the fact that the home goods retailer is in danger of filing for bankruptcy.
The company skipped making interest payments due on $1.2 billion in debt on Feb. 1. This may be a sign that a Chapter 11 filing is imminent. So why are meme traders still bullish on BBBY stock?
Possibly, the meme set believes a Bed Bath & Beyond bankruptcy will have a similar outcome to the Hertz Global Holdings (NASDAQ:HTZ) bankruptcy, a rare situation where common shareholders avoided a total wipeout.
However, the scenario may not repeat itself here. As a Seeking Alpha commentator recently argued, shares are unlikely to have any recovery value post-bankruptcy. If you own BBBY right now, sell into this irrational strength.
GameStop (NYSE:GME) is another of the popular meme plays that is also one of the top retail stocks to sell following a 20.5% jump in shares year to date.
The video game retailer isn’t at risk of Chapter 11. Despite sustaining heavy operating losses, the company is sitting on a $1 billion war chest of cash.
But while GameStop has plenty in the till to keep the lights on and to fund its metamorphosis into an e-commerce company, don’t assume that means the recent rebound in shares will continue. Once the latest meme wave fades, this “meme king” will undoubtedly give back recent gains and fall back down to the mid-teens.
From there, GameStop is likely to continue dropping, as its business remains unprofitable, even with the digital transformation. Wall Street analysts currently have a median price target of $5.30 per share for GME, suggesting 76% downside from the current level.
Joann (NASDAQ:JOAN) isn’t a meme stock, but it has generated meme-like gains for investors, rallying 56.5% in 2023. And it’s up 81% from its all-time low of $2.46, made in late December after the company reported disappointing results and suspended its dividend.
If you bought near the low, or even if you’ve held it since it traded at much higher prices, you may want to take the opportunity to sell JOAN stock now. With its margins squeezed by inflation and the pandemic-era surge in demand/traffic at its stores now gone, Joann is in a tough spot.
While suspending its dividend and store closures will help conserve cash, these moves may not prevent the company from becoming a victim of the “retail apocalypse.” If you still hold JOAN stock, take advantage of the recent dead cat bounce and sell.
Newegg Commerce (NEGG)
Newegg Commerce (NASDAQ:NEGG) isn’t making the type of meme moves it did back in 2021, but like the other meme-related retail stocks to sell, shares of this computer/electronics retailer have jumped higher in 2023, by nearly 50% in the case of NEGG.
Much like the other names in this category, Newegg Commerce’s fundamentals fail to impress. In recent quarters, the company, which is majority-owned by China-based Liaison Interactive, has reported operating losses. Even if supply chain and inflationary headwinds ease, the current slowdown in demand for tech products signals further poor results ahead.
With this, it makes little sense why this enterprise, which was barely profitable during better times, currently sports a market cap of more than $735 million. NEGG may be a low-priced stock, trading at less than $2 per share, but it’s far from cheap. Once the latest hype fades, it could easily drop in price by a substantial amount.
Stitch Fix (SFIX)
Stitch Fix (NASDAQ:SFIX) may be one of the more unique retailers. This online apparel retailer is best known for its “style quiz” option. Stitch Fix’s stylists curate clothing and accessories, which are then sent to customers who can decide which items to keep and which items to send back.
In past years, the company’s unique twist on e-commerce helped fuel massive growth. More recently, however, growth has slowed while the bottom line has swung from profitability to heavy losses.
All of this has knocked SFIX stock significantly lower over the past two years, with shares losing 94% of their value. But like other hard-hit names, shares have surged in 2023, rallying 69%. Don’t assume, though, that an additional rebound is likely. Analysts expect only a moderate narrowing of losses over the next two years.
Vroom (NASDAQ:VRM), an online automotive retailer similar to Carvana (NYSE:CVNA), is up 35% year to date and 67% since bottoming in early November. But I wouldn’t view VRM’s steep jump in price over the past few months as a sign of a continued recovery.
The automotive bubble continues to deflate. According to analysts at J.P. Morgan, used car prices could drop by as much as 20% during 2023. This is bad news for the company, which makes money through the sale of used vehicles. Even during the boom times for used auto sales, this early-stage “disruptor” was operating at a loss.
Over the past year, operating losses have ballooned. Although Vroom continues to reduce headcount to cut costs, the annual cost savings from the latest layoffs of about $27 million aren’t enough to fix the situation.
In just over two years, shares of ContextLogic (NASDAQ:WISH) have dropped from over $30 to under $1. But investors shouldn’t assume things can only get better from here.
Based on how WISH stock has rallied recently — up 53% since the start of January — many speculators are making this wager. Yet, the chances of a successful turnaround for this e-commerce company, which operates the Wish.com platform, are slim.
Since last year, ContextLogic has prioritized profitability over growth. Instead of spending heavily to drive traffic to its site, it is trying to build a steady user base. This has yet to result in major improvement. As InvestorPlace’s Joel Baglole recently pointed out, “consumers don’t seem to like Wish’s app and have left it in droves” with its monthly average users falling 60% year over year in the most recent quarter to just 24 million people worldwide.
ContextLogic is a busted growth story that’s still unraveling. Another high double-digit percentage drop for WISH stock may be in the cards.
On the date of publication, Thomas Niel did not hold (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.