Among the biggest losers in Monday’s early trading are PetMed Express (Nasdaq: PETS), Delta Air Lines (NYSE: DAL) and Hovnanian Enterprises (NYSE: HOV).

Discretionary Spending Cuts hurt PetsMed Express

There are three possible reasons why sales at direct-to-consumer pet drug prescription retailer PetsMed Express (Nasdaq: PETS) are falling — as the company just announced. Perhaps it’s because PETS aired fewer TV ads in the second quarter. Or maybe it’s that fewer people are keeping pets in these cost-constrained times. Or perhaps it’s an industry that is now fully mature. After all, sales growth has been steadily decelerating, from very strong during 2002, 2003 and 2004, to moderately strong in the next three to four years, to below +10% in the most recent fiscal year. For fiscal (March) 2011), the company be looking at flat growth — at best.

Action to Take –> PetsMed’s just-announced quarterly profit results trailed analysts’ forecasts by nearly 20%, and that’s knocking -9% off of the value of shares, as forward forecasts will likely need to come down. Shares are unlikely to see a bounce any time soon, and could come down a bit further from today’s levels as large shareholders rotate out of the stock in coming weeks. Notably, shares of pet-focused PetSmart (Nasdaq: PETM) trade within 10% of their 52-week high, and if that retailer’s recent very high level of promotional activity is any guide, quarterly results (which will be released in late August) may be pressured there as well.

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Delta signals Airline Industry Revenue Weakness

Shares of Delta Air Lines (NYSE: DAL) are off roughly -9% after the nation’s largest air carrier posted second-quarter sales on Monday that were roughly $100 million below forecasts. Shares of UAL (Nasdaq: UAUA), parent company of United Airlines, are off -8%, while U.S. Airways (NYSE: LCC) is off -9%, in sympathy with Delta’s results.

Only recently, Delta’s CEO Richard Anderson told shareholders that industry conditions were quite robust. And a quick survey of analysts’ forecasts implies that revenue should keep growing at a solid clip later this year and into 2011. Analysts may look to moderate their revenue growth assumptions. And as we suggested earlier this month, labor-induced cost pressures may start to build.

As recently as mid-June, investors had become more bullish on the group, pushing the AMEX Airline Index (AMEX: XAL) above 40. It’s off nearly -4% today to around 36.5. Depending on what the other major air carriers have to say, we could see that index slump further in coming days.

Action to Take –> Delta now trades for less than five times projected 2011 profits, which may tell us that many investors don’t believe analysts’ forecasts. Those forecasts are likely to be trimmed, but shares of Delta will still look quite cheap. Wait for sector results to be digested, but you can then take a flier on one of these cheap stocks, as it is increasingly clear that the United States and Europe should be able to avoid a double-dip.

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Home Builders can’t Wait Forever

At the end of 2008, economists expected the housing market to start to rebound about 18 months later. And ever since then, any upturn has still looked to be that far off. Recent home builder data indicate that a 2011 rebound may not even happen. Trouble is, homebuilders can’t wait forever. Some of them keep losing money, and eventually the well may run dry.

#-ad_banner-#Take Hovnanian Enterprises (NYSE: HOV) as an example. The New Jersey-based home builder lost $3 a share in fiscal (October) 2009, is on track to lose another $1.50 per share this year (excluding a one-time gain), and perhaps a similar amount next year. Moreover, long-term debt stands at more than $1.7 billion, and lenders like to see positive cash flow to help support future debt re-payments. And those lenders often have an option to call in a loan if a company can’t meet cash flow targets.

And that’s especially why Hovnanian — and other home builders — would like to see a housing rebound. Sooner rather than later, they may need to start selling off assets just to keep the bankers at bay.

Action to Take –> Shares of Hovnanian are off nearly -6% on Monday, and have lost more than half of their value during the past three months. As the housing crisis rolls on, shares could come under even greater pressure. Hovnanian may look to sell stock to lighten the debt load, but that could lead to very large dilution.