3 Stocks to Avoid With Rising Food, Energy, and Labor Costs By StockNews

3 Stocks to Avoid With Rising Food, Energy, and Labor Costs By StockNews

© Reuters. 3 Stocks to Avoid With Rising Food, Energy, and Labor Costs

Many restaurant and travel stocks have had impressive rallies over the past month. However, I believe investors are underestimating the challenge that rising costs will create for companies like Shake Shack (NYSE:), Carnival (NYSE:) Cruises (CCL), and Hyatt Hotels (NYSE:).Most analysts expect the second half of the year to be quite strong as the economy gradually returns to normal. The biggest beneficiary will be the travel and tourism sector which has been offline for much of the past 15 months. Companies in these sectors will certainly benefit from pent-up demand over the next few quarters which should lead to higher revenues and more pricing power.

However, these companies do face a notable challenge. In order to meet this demand, they will need to aggressively hire workers which is proving to be difficult for many businesses especially without meaningfully raising wages. Many workers left the industry to pursue work in other sectors which were hiring over the last year. Many older workers seem to have permanently left the workforce.

Most likely, these companies will have to significantly raise wages and offer additional benefits to attract workers. This will inevitably eat into margins. I don’t expect this to matter in the near term given the surge in demand, but I do think on a longer-term basis, it will lead to lower multiples. Of course, the same circumstances are playing out with other costs such as food and energy. Therefore, investors should be wary of the following stocks: Shake Shack (SHAK), Carnival Cruises (CCL), and Hyatt Hotels (H).

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