Consumer discretionary businesses are levered to the highs and lows of economic cycles. This sensitive demand profile can cause discretionary stocks to plummet when macro uncertainty enters the fray, and over the past six months, the industry has shed 9.8%. This drawdown is a far cry from the S&P 500’s 2.3% ascent.

Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. Keeping that in mind, here is one consumer stock boasting a durable advantage and two we’re steering clear of.

Two Consumer Discretionary Stocks to Sell:

YETI (YETI)

Market Cap: $2.72 billion

Founded by two brothers from Texas, YETI (NYSE: YETI) specializes in durable outdoor goods including coolers, drinkware, and other gear tailored to adventure enthusiasts.

Why Should You Sell YETI?

1. Annual revenue growth of 11.3% over the last five years was below our standards for the consumer discretionary sector
2. Forecasted free cash flow margin suggests the company will fail to improve its cash conversion over the next year
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

At $36.45 per share, YETI trades at 13.4x forward P/E. If you’re considering YETI for your portfolio, see our FREE research report to learn more.

The Real Brokerage (REAX)

Market Cap: $524.4 million

Founded in Toronto, Canada in 2014, The Real Brokerage (NASDAQ: REAX) is a technology-driven real estate brokerage firm combining a tech-centric model with an agent-centric philosophy.

Why Do We Think REAX Will Underperform?

1. Poor expense management has led to an operating margin of -0.8% that is below the industry average
2. Earnings growth over the last four years fell short of the peer group average as its EPS only increased by 8.9% annually
3. Free cash flow margin is not anticipated to grow over the next year

The Real Brokerage’s stock price of $2.47 implies a valuation ratio of 6x forward EV-to-EBITDA. To fully understand why you should be careful with REAX, check out our full research report (it’s free).

One Consumer Discretionary Stock to Watch:

Apple (AAPL)

Market Cap: $3.75 trillion

Creator of the iPhone and App Store, Apple (NASDAQ: AAPL) is a legendary developer of consumer electronics and software.

Why Is AAPL Interesting?

1. Apple's revenue base is so large because nearly everyone in the U.S. has an iPhone, but this is a double-edged sword. Growth must now come from upgrades, a harder pitch that has resulted in sluggish top-line performance recently.
2. Still, Apple's devices have endured for decades, speaking to its brand, design ethos, and technological chops. Its success is rare in the world of consumer electronics, which is fraught because of commoditization, competition, and obsolescence risk.
3. The company may not have the best gross margin because of its hardware orientation, but it still manages to produce elite operating and free cash flow margins. This shows it doesn’t need over-the-top marketing campaigns to convince people to buy its products.

Apple is trading at $255.92 per share, or 30.3x forward price-to-earnings. Is now a good time to buy? Find out in our full research report, it’s free.

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