U.S. equities markets have had a decent albeit volatile year thus far, as inflation, interest rates, and geopolitical tensions have, at one time or another, weighed on investor sentiment. Let’s have a look at the numbers. Towards the end of July, the S&P 500 index had reached peak annual performance, at one point returning 19.5%. This outperformance has conversely led to the emergence of S&P 500 stocks to sell.
These days, the index is just returning 16.1%. While some sectors have performed well, others have really struggled to cope with the changing macroeconomic environment. In fact, some stocks have severely weighed on the overall index’s performance.
Below I will look through three stocks that are tracked by the S&P 500 index that investors should consider selling in September 2023 as the current state of the global economy has spelled a cloudy outlook for their business models.
Dollar General (DG)
Dollar General (NYSE:DG) is a discount retailer that operates over 19,000 stores in 46 states, primarily targeting low- and middle-income consumers by offering a variety of merchandise at low prices. The discount retailer was able to build its brand in rural and suburban areas where there are few other budgetary shopping options.
Though inflationary pressures began to hit consumers in 2022 with the Consumer Price Index peaking at 9.1% in June of last year, ordinary consumers really began to feel inflationary pressures as they persisted in 2023. Persistent inflation has resulted in consumer in an understandable pullback in consumer spending, even at cheaper outlets like Dollar General. Last week, the discount retailer posted its second-quarter earnings print, and the situation has not changed much from when the company reported on the first quarter in May: transactions growth has slowed, and ‘shrink’ has gone up. The latter is a term trotted out in retail to refer to lost inventory typically due to theft.
Even when Dollar General began to offer groceries or consumables in-store, customers did not necessarily increase their spending. Rather, customers increased their spending on food items but spent less money on non-essentials. Dollar General’s shares have tumbled 48.3% YTD. Until consumers begin to feel inflation has sufficiently been curtailed, equities investors should consider selling the discount retailers’ shares before they hit another bottom. This makes it one of those S&P 500 stocks to sell.
CVS Health Corporation (CVS)
CVS Health Corporation (NYSE:CVS) is a healthcare company that provides pharmacy services, health insurance plans, retail products, and clinical solutions. The company operates over 9,900 retail locations, over 1,100 walk-in clinics, a pharmacy benefits manager with more than 110 million plan members, and a health insurer with over 35 million medical members.
However, CVS Health Corporation has been facing headwinds from the COVID-19 pandemic, which has reduced demand for its pharmacy and retail segments, as well as increased costs for its healthcare services segment. In the first quarter of 2023, the company reported an 11% YoY increase in revenue to $85.3 billion. However, adjusted operating income decreased by 5.1% YoY to $4.4 billion, due to costs associated with the acquisitions of Signify Health and Oak Street Health. Due to these burgeoning costs, healthcare companies also reduced full-year guidance for 2023, 2024, and 2025.
Recent news that insurer Blue Shield of California would drop CVS Health’s Caremark, the pharmacy-benefit manager it currently uses, which negotiates drug prices and wraps in other services such as a mail-order pharmacy. Blue Shield will instead partner with Amazon’s (NASDAQ:AMZN) pharmacy. CVS Health’s shares are down 29.3% YTD. Because the healthcare company is likely to face further challenges as it integrates its recent acquisitions and competition from online pharmacies, investors are perhaps better off if they steer clear. This makes it one of those S&P 500 stocks to sell.
EPAM Systems (EPAM)
EPAM Systems (NYSE:EPAM), like a host of other technology services companies, has been severely impacted by the macroeconomic environment. If you think about it for a moment, the reason why is simple. Companies have become risk-averse and less willing to increase costs for information technology services unless they are particularly transformational. EPAM provides digital platform engineering and software development services globally. These services were clearly in demand in recent years since EPAM had maintained solid top-line growth averaging 25+ over the past five years. Nonetheless, that customer demand has all but dissipated in 2023.
Earlier in the year, EPAM’s management team announced a downward revision of revenue guidance, implying a 2% decline YoY. Similarly, they disappointed investors again in their second-quarter print. The services company revised full-year guidance downward another time, implying a 3% YoY decline in top-line figures. EPAM’s shares have dropped 19.0% YTD, and as the macroeconomic environment remains cloudy, investors should not put their hopes in a speedy recovery for stock.
On the date of publication, Tyrik Torres 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.