It’s time to sell stocks that are experiencing a backlog of inventory at the same time consumer demand is slowing, according to Adam Parker of Trivariate Research. Inventory levels have become a key performance indicator for stocks as companies continue to grapple with global supply chain issues exacerbated by the pandemic, according to a research note from Trivariate. “Inventory levels are a growing problem: For large-cap stocks, inventory-to-sales is approaching all-time highs,” wrote Parker, who was previously the chief US equity strategist at Morgan Stanley. “With production approaching consumption, we are now seeing some earnings reports as strong demand will be needed to burn off the increased inventory,” he added. Rising inventories affect industrial inventories, including auto parts, household goods and certain technology products, according to the triple variable. Meanwhile, the sectors where the company is not concerned about inventory levels are the energy, metals and mining industries. Stocks that investors should sell are at risk of “surprisingly negative” future earnings reviews, according to Trivariate. The company identified companies with higher inventory, higher capital expenditures, and declining revenue growth over the next year. Here are nine selling ideas from the company. Semiconductor companies have high levels of inventory-to-sales, but Parker said the “real concern” is that production will exceed demand later this year if the current backlog is eliminated, according to the memo. Trivariate is called Nvidia and Intel as selling ideas. Clorox primary consumer stock has also been classified as selling. The note said consumer goods inventories had levels from inventory to sales close to all-time highs. The note notes that industrial stocks such as Stanley Black & Decker are “potentially problematic,” reporting the highest levels of inventory-to-sales since the financial crisis. Other stocks listed include Nucor, Best Buy, Scotts Miracle-Gro, Quest Diagnostics and Gap. —CNBC’s Michael Bloom contributed to this report.
/cdn.vox-cdn.com/uploads/chorus_asset/file/23954510/acastro_STK459_12.jpg)
