Wells Fargo advised investors to avoid Bed Bath & Beyond (NASDAQ:BBBY), Joann Inc. (NASDAQ:JOAN), and Wayfair (NYSE:W) as retail trends turn more bearish.
“As macro screens increasingly dubious, we’re sticking with needs-based categories, top-tier execution & limited margin fallout potential,” Equity analyst Zachary Fadem explained.
In his analysis, this placed names like AutoZone (AZO), Tractor Supply Company (TSCO), and O’Reilly Automotive (ORLY) as top picks once again. Meanwhile, names like Best Buy (BBY) and Williams Sonoma (WSM) were more cautiously viewed given their stark underperformance in recent recessions given the more discretionary nature of their products.
However, Fadem saved his most pessimistic reviews for Bed Bath & Beyond (BBBY), Joann Inc. (JOAN), and Wayfair (W) as there remains outsized downside risk for each in his view.
“Wrong stock, wrong tape as investor appetite for high growth negative EBITDA/FCF pandemic winners is very low,” Fadem wrote of Wayfair (W). “Add to that limited trend visibility, elevated reinvestment levels plus a CFO transition; we see negative risk reward.”
Both Bed Bath & Beyond (BBBY) and Joann Inc. (JOAN) were negatively reviewed based upon the “few silver linings” associated with each story as consumer spending trends downward, inflation continues to impact results, and inventory issues persist. Fadem added that he and his team “don’t subscribe to the buybuy BABY monetization hype” for Bed Bath & Beyond (BBBY).
Read more on Fadem’s top picks in retail.