2 No-Moat Stocks That Could Be at Risk as Inflation Rises

On the April 6, 2026, episode of The Morning Filter podcast, David Sekera and Susan Dziubinski discuss stocks that Sekera thinks are a sell today. Here is an excerpt from the show.

Why Kroger Is at Risk From Inflation

Susan Dziubinski: Let’s move on to the picks portion of this week’s podcast. And this week we’re doing something a little different. Viewers have told us they like hearing about what stocks maybe they should also avoid or sell. So Dave’s brought us some ideas this week, a list of overvalued stocks to sell that he thinks specifically are at high risk in the face of higher inflation. All right. So your first stock to sell this week, Dave, is Kroger KR. Give us some of the key metrics on it.

David Sekera: Kroger is currently a 2-star-rated stock. Trades at a 23% premium. We rate the company with a medium uncertainty, but we do rate it as no economic moat. So again, we don’t think that Kroger has necessarily any long-term durable competitive advantages such that they’d be able to outearn their weighted average cost of capital over the long term.

Dziubinski: Why do you think Kroger’s at risk in the face of higher inflation? I mean, we all have to eat, right?

Sekera: Yes, we all have to eat, but that doesn’t mean that you necessarily need to shop at Kroger. There’s a lot of other retailers out there that sell food, a lot of other discount stores, Walmart WMT, Target TGT, the dollar stores, and so forth. So I just think in a high inflationary environment, especially because that would end up causing a lot of economic contraction as well, I think consumers would evermore just be looking for where they can save money, specifically among their grocery bill. And it also doesn’t mean that we’d be still eating the same things. I think you’d see a lot of substitution for lower-price food items, which oftentimes are going to be lower-margin items for the stores as well. And then just anecdotally, over the course of my career, I’ve followed grocery stores in the supermarkets a couple of times. What I always found that, in an inflationary environment, the grocery stores typically are unable to put through those inflationary cost increases to their customers as fast as their own costs go up.

That of course then pressures operating margins. It’s usually later in the inflationary cycle that they start catching back up to inflation that you see those margins then start to reexpand again. And of course, this is just a business, which is a ridiculously low-margin business. So even small changes in the operating margin end up having a much larger impact on the margins or the earnings for the company overall. Took a quick look through our model. We’re forecasting revenue of 2.4% compound annual growth rate over the next five years. We’re only looking for earnings growth of 4.2% over that same time period, and that’s based on the operating margin expanding back to 3%, which is pretty much its 10-year average. Stock’s trading at 14 times our 2026 earnings estimate. Doesn’t necessarily seem all that high, but for a low-growth, low-margin business, again, any kind of pressure on the margins just going to have outsize negative effect to the earnings. So I think this is one where you could suffer from both earnings coming down as well as margin contraction.

Williams-Sonoma’s Struggle Under Inflationary Pressures

Dziubinski: Your final stock to sell this week is Williams-Sonoma WSM. Tell us about it.

Sekera: It’s a 2-star-rated stock. Trades at a 32% premium. We rate the company with a high uncertainty and no economic moat.

Dziubinski: All right. And so walk us through the sell rationale on Williams-Sonoma.

Sekera: So their results are just very, or really highly dependent on discretionary spending overall. And I think home goods is an area that consumers naturally would put off spending if inflation is squeezing their household budgets. The other problem here is if inflation were to lead to higher interest rates and/or higher home prices, that’s going to reduce the amount of turnover that we see in the home market. And if you have less turnover, you also have less new home remodeling. Again, people move into a house, and they want to set it up the way that they want to live in it. So what we’ve seen over time with this company is that sales are very closely correlated with home turnover as people move in and over the next, call it, three to nine months, redecorate their house.

The other problem here is 80% of the products it sells are imported. So higher oil prices just going to raise their own costs. Company trades right now at 19 times forward earnings. That’s really much higher than where it’s historically traded in the past. So another one that I’m concerned that you could have either earnings-growth rate slow or maybe even turn negative and, at the same point in time, have the market pull in the multiple that they’re willing to pay. So again, another one I think you could get hit both from earnings and multiple contraction.

Subscribe to The Morning Filter on Apple Podcasts, or wherever you get your podcasts, and keep up with the latest research from hosts Susan Dziubinski and David Sekera on Morningstar.com.