With consumer prices hitting multi-decade highs, investors should consider avoiding the worst stocks to buy during inflation. True, the inflation rate dipped a bit in July to 8.5%. In the month prior, the metric hit 9.1%. Nevertheless, it’s important to realize that overall, consumers have endured sustained spikes in prices. Over time, that can hurt broader sentiment, which in turn imposes challenges on various public companies.
To be clear, few institutions benefit holistically from higher prices. For instance, while the hydrocarbon energy sector enjoyed a valuation surge, consumers may eventually reduce their expenditures. Given enough time, this abstinence could make circumstances challenging for previous beneficiaries. However, the worst stocks to buy during inflation stand out because of the red ink they print.
While many other factors exist as to why investors should avoid the worst stocks to buy during inflation, InvestorPlace prefers me to be succinct. Therefore, I’m going to go with the rise of risk-off sentiment. Essentially, as consumer sentiment declines, the most viable opportunities favor investments with proven track records, not speculative vehicles.
Therefore, the theme for the worst stocks to buy during inflation is to avoid anything unnecessary.
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Signet Jewelers (SIG)
Since we’re talking about a relatively negative theme anyways, I’m going to start off with a controversial idea. Those interested in avoiding the worst stocks to buy during inflation should steer clear of Signet Jewelers (NYSE:SIG). As the owner of popular brands like Kay Jewelers, Zales and Jared, a holistically bullish environment favors SIG. However, under rising prices, the narrative becomes tricky.
A common assumption exists that recessions pose challenges for relationships. Basically, people can’t afford to marry, thus hurting jewelry sales. To be fair, many experts contest this narrative. Nevertheless, the rise of cohabitation following the Great Recession could be linked to its underlying economic pressures. In other words, these folks could have gotten married eventually. However, they certainly delayed marriage, which fundamentally weighed on the jewelry industry.
Although it’s not always wisest to extrapolate equity sector trajectories based on past events, the current inflation rate is historic. Since relationship-based milestones don’t represent absolute necessities, investors should be careful with SIG stock.
Lindblad Expeditions (LIND)
From certain angles, I can go either way with Lindblad Expeditions (NASDAQ:LIND), which facilitates exotic vacations. From trips to the Galápagos Islands to Antarctic expeditions, Lindblad takes you to places few companies do. Moreover, the Covid-19 pandemic created pent-up demand for outdoor experiences. Therefore, it’s not much of a stretch to assume that folks with money will help bolster LIND stock.
However, the economic headwinds associated with rising prices may impact non-affluent consumers who may have been saving up. With more existential concerns to focus on, many of these would-be clients may opt out for cheaper fares. Given the non-essential nature of Lindblad, it may classify as one of the worst stocks to buy during inflation.
On top of that, recent financial performances don’t bode well for LIND. For example, while Lindblad may have generated nearly 500% YOY growth in the second quarter this year, the comparison represents a distortion due to pandemic-related disruptions.
On a trailing-12-month (or TTM) basis, its $289 million revenue tally slips significantly below 2019 sales.
Though I don’t mean to pick on online used-car retailer Vroom (NASDAQ:VRM), the conclusion leads to the obvious. VRM represents one of the worst stocks to buy during inflation.
To be clear, it’s not that I dislike the used-car industry or the broader auto dealership sector. Per the Wall Street Journal, cars on U.S. roadways hit a record average age of 12.2 years. In other words, once they fail, consumers will likely need to replace them than repair money pits. However, under an inflationary cycle, rational people will elect the lower-cost alternative to necessary purchases.
Enter Vroom as one of the worst stocks to buy during inflation. Essentially, the company suffers from the trade-down effect. Faced with various headwinds, consumers trade off conveniences for lower premiums. Unfortunately, Vroom operates at the wrong end of the trade-down spectrum. When regular dealerships or even private-party transactions offer cheaper alternatives, your business is in trouble.
Speaking of the trade-down effect, it’s now time to have a discussion about Target (NYSE:TGT). Unfortunately for the big-box retailer, it operates under an awkward dynamic. On the top end, you have Costco (NASDAQ:COST), which caters to the wealthy. You can make the reasonable argument that it’s recession resistant. On the other end, you have Walmart (NYSE:WMT), which caters to everyone through, as its slogan goes, “everyday low pricing.”
Should consumer prices stay elevated (let alone rise), TGT would be one of the worst stocks to buy during inflation. Indeed, the market already adjudicated this thesis. On a year-to-date basis, COST is down nearly 4%, whereas WMT shed 7%.
And Target? Its stock hemorrhaged 30% during the same period.
In fairness, headwinds such as the bullwhip effect that hedge-fund manager Michael Burry mentioned pose challenges for all retailers. However, I believe Target is especially problematic. Why? Its shoppers are well off but not Costco-level well off. Put another way, they will trade down to Walmart if push comes to shove.
Zoom Video (ZM)
Once the darling of Wall Street, Zoom Video (NASDAQ:ZM) wishes it could have access to a flux capacitor. Prior to the Covid-19 crisis, ZM traded hands for roughly $70 to $80. Then, the now no longer novel coronavirus spread its linens on the U.S., briefly capsizing our society. However, Zoom kept the lights on in the business world, empowering work-from-home initiatives.
Today, I’m afraid that ZM is one of the worst stocks to buy during inflation. To clarify, Zoom Video isn’t necessarily a bad idea for inflationary cycles in general. However, during this period of inflation, it is. With the Federal Reserve committed to squashing rising prices through higher benchmark interest rates, the incentive for speculation evaporated.
Zoom’s net income sharply declined on a YOY basis for its quarter that ended April 30. This implies broader viability concerns as people return to the office. And yes, I do believe people will return to the office.
The facts support my reasoning. Even in 2020, eight in ten workers admitted to slacking off at work during Covid-related lockdowns. If you think employers don’t know what’s up, I have a bridge to sell you.
New York Times (NYT)
On the surface, the New York Times (NYSE:NYT) represents an odd idea for the worst stocks to buy during inflation. For one thing, the company pays a dividend (albeit a small one). Another factor that contradicts its inclusion on this list is its financial performance.
In Q2 2022, the news media firm posted revenue of $556 million, up nearly 12% from the year-ago quarter. The company also posted a net income of $62 million, up almost 15% YOY. On a TTM basis, NYT’s revenue exceeds 2021’s result. If it can maintain this performance, it will have the best sales tally since 2009. At the time, the company rang up $2.94 billion.
So, why the negativity? Primarily, the online advertising market has suffered substantial hits. Even Meta Platforms (NASDAQ:META) CEO Mark Zuckerberg recently told analysts: “We seem to have entered an economic downturn that will have a broad impact on the digital advertising business.”
Fundamentally, consumers will be unlikely to pay for news. It’s just too much of an easy expenditure to cut.
At some point, I expect Coinbase (NASDAQ:COIN) to recover from its malaise. From the beginning of this year through the Aug. 22 session, COIN hemorrhaged a disastrous 71.5%. However, its recovery depends on the underlying cryptocurrency sector. Here too, the segment printed gallons of red ink. For now, COIN definitely represents one of the worst stocks to buy during inflation.
On some level, COIN and more specifically the major underlying cryptos should perform well under rising prices. As blockchain advocates quickly remind us, many of these digital assets feature limited supply. Therefore, something with a limited supply must have a higher value.
Well, not always. Supply and demand is a two-way street. If there’s no demand then a low supply isn’t going to save the crypto sector’s prices.
So, unfortunately, investors must face reality. At a time when consumer prices are sky high, the limited-supply narrative hasn’t panned out. Therefore, it’s time to wait this volatility out before eventually moving back in.
On the date of publication, Josh Enomoto 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.