It’s time to sell stocks that are seeing inventory pile up at the same time as consumer demand slows, according to Adam Parker of Trivariate Research. Inventory levels are becoming the key performance indicator for equities as companies continue to deal with global supply chain issues made worse by the pandemic, according to a research note from Trivariate. “Inventory levels are a growing problem: For large cap stocks, inventory-to-sales is near all-time highs,” wrote Parker, who was formerly the chief U.S. equity strategist at Morgan Stanley. “As production catches up to consumption, we are now seeing some earnings reports where strong demand will be required to burn off growing inventory,” he added. Rising inventories are afflicting industrial stocks, including auto parts, household goods and certain technology products, according to the Trivariate. Meanwhile, sectors where the firm is not worried about inventory levels are the energy and metals and mining industries. Stocks that investors should sell are at risk of “surprisingly-negative” future earnings revisions, according to Trivariate. The firm identified companies with high inventory, high capital expenditures and declining revenue growth over the next year. Here are nine sell ideas from the firm. Semiconductor companies have high inventory-to-sales levels, but Parker said the “real concern” is that production will exceed demand later this year should current backlogs get canceled, according to the note. Trivariate named Nvidia and Intel as sell ideas. Consumer staple stock Clorox was also tagged as a sell. Consumer staples stocks have inventory-to-sales levels that are nearing all-time highs, the note said. Industrials stocks such as Stanley Black & Decker are “potentially problematic,” according to the note, reporting the highest inventory-to-sales levels since the financial crisis. Other stocks named include Nucor, Best Buy, Scotts Miracle-Gro, Quest Diagnostics and Gap. —CNBC’s Michael Bloom contributed to this report.
