Despite the best efforts of management, employees and investors, some companies simply cannot withstand certain macroeconomic pressures. In the case of the stock market and publicly traded companies, these kinds of pressures can highlight which stocks to sell. For example, a candy bar company famous for the flavor of its chocolate would not be able to survive a cocoa bean blight that makes the cost of chocolate too exorbitantly high to profit from.
The same is true for any company that produces a good or offers a service. If the economic factors behind the process become too expensive to profit from, the company’s revenues, profit margins, and ultimately, its share value will go down.
Thus, investors should protect their portfolios from significant drops in value by examining a company’s profitability and revenue cost to determine whether factors like high interest rates or increased taxes will cause it to buckle.
Uber (UBER)
Once so successful that it outcompeted the taxi industry, Uber’s (NYSE:UBER) struggle with profitability and constant expansion could come to a halt as consumer spending tightens. The company, which once seemed like a cheaper, nicer, and more convenient alternative to the traditional taxi, has become increasingly expensive since its early days due to several macroeconomic factors.
First is the price of gas, which is still relatively high across the U.S. and on average a dollar more per gallon than when Uber went public. Second is general inflation eating into the purchasing power of the average consumer. Consumers struggle to buy groceries and necessities, so their desire to pay for increasingly expensive rides decreases. Third, Uber drivers feel the squeeze from both sides, as maintaining their cars, fueling them and providing for themselves with the meager pay from Uber becomes nearly impossible.
Ultimately, Uber stock might be one of the biggest stocks to sell before worsening economic conditions make its business model unviable.
Yum! Brands (YUM)
As the owner of several low-cost and famous fast-food brands like KFC and Pizza Hut Yum! Brands (NYSE:YUM) is subject to the same decrease in consumer discretionary spending as Uber. The difference is, however, in perception. With YUM, consumers may struggle to justify paying more for what they already know is a low-quality product. This is exactly what happened in YUM’s most recent earnings release which saw both KFC and Pizza Hut sales decline 2% for the company.
While one of the company’s other brands, Taco Bell only saw a 1% decline, it underscores that even the cheapest fast food is no longer the most attractive option for many. In a market with tightening inflation, where even simple groceries like eggs, milk, and bread are hitting high prices, paying money for food you know isn’t good for you is a hard sell.
Moreover, whether or not YUM finds a way to cut costs to increase profits or decrease the cost of revenue, consumers may be moving on from the unhealthy options it so heavily relies on.
Restaurant Brands International (QSR)
Much like its competitor YUM, Restaurant Brands International (NYSE:QSR) is feeling the pressure of a weakening dollar and an increasingly health-savvy consumer. That’s because QSR is a conglomerate of four fast-food brands: Burger King, Tim Hortons, Popeyes and Firehouse Subs. Three of these four are notorious for their exceptionally unhealthy products but were able to skirt this perception by keeping costs low and quality decent.
Now Burger King is known for poor customer experience, both with its restaurants and the food they sell. Tim Hortons, on the other hand, has better customer perception but is infamous for the extreme sugar content of its standard coffee beverages. Popeyes and Firehouse Subs have more consistent fanbases and serve more niche markets so they tend to do better.
As consumers begin to understand the effects of excess sugar on the body and choose to spend their money more wisely, QSR’s margins will likely keep slimming down, resulting in one of the more important stocks to sell now for investors.
On the date of publication, Viktor Zarev 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.