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2 Consumer Cyclical Stocks to “Sell” Right Now

Polen Capital Management recently released its Q3 2020 Investor Letter. During the third quarter of 2020, the Polen U.S. SMID Company Growth Composite Portfolio returned 7.11% gross of fees, while the Russell 2500 Growth Index was up 9.37%. You should check out Polen Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of this year.

In the said letter, Polen Capital spoke about Texas Roadhouse Inc. (NASDAQ:TXRH) and Five Below Inc (NASDAQ:FIVE) stocks. Texas Roadhouse Inc. (NASDAQ:TXRH) is a restaurant company. Year-to-date, Texas Roadhouse Inc. (NASDAQ:TXRH) stock gained 28.6% and on November 12th it had a closing price of $72.42. Five Below Inc (NASDAQ:FIVE) is a discount store company. Year-to-date, Five Below Inc (NASDAQ:FIVE) stock gained 11.7% and on November 12th it had a closing price of $142.83. Here is what Polen Capital said:

"We exited our positions in Texas Roadhouse and Five Below. We think COVID-19 related disruption remains a higher-than-average risk for both companies in the near and intermediate term. Both companies are examples of having to update our views because of the pandemic—the combination of disease headwinds, changes in the health of the consumer, and changes in consumer preferences and behaviors make the near, medium, and long-term prospects for each business more fragile than they were pre-pandemic.

Both companies also face longer-term headwinds in our view. For Five Below, the growth of e-commerce continues to accelerate, and the company has yet to demonstrate that its concept transitions well to an online environment. For Texas Roadhouse, the retail footprint of its “Texas Roadhouse” brand is relatively mature, and management, despite its efforts, has yet to develop a successful, second concept. With both positions having gained back much of what was lost initially due to the pandemic, neither stock seems to be fully discounting these risks."


In Q2 2020, the number of bullish hedge fund positions on Texas Roadhouse Inc. (NASDAQ:TXRH) stock decreased by about 7% from the previous quarter (see the chart here), so a number of other hedge fund managers don't believe in Texas Roadhouse's growth potential.

In Q2 2020, the number of bullish hedge fund positions on Five Below Inc (NASDAQ:FIVE) stock increased by about 35% from the previous quarter (see the chart here), so a number of other hedge fund managers believe in Five Below's growth potential.

Our calculations showed that Texas Roadhouse Inc. (NASDAQ:TXRH) and Five Below Inc (NASDAQ:FIVE) aren't ranked among the 30 most popular stocks among hedge funds.

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