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3 Stocks to Avoid This Week

By Rick Munarriz – Updated Jun 22, 2020 at 9:41AM

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There's an online betting darling, casual dining icon, and struggling cruise line operator that seem pretty vulnerable this week.

I took a look at three stocks to avoid last week, and that basket of short-term calls went fairly well. The three stocks declined by an average of 11%, a sharp contrast to the market's 2% climb. It was a matter of one stock plunging 39% with the other two keeping pace with the market, but a win is a win. 

Let's try this again. I see DraftKings (DKNG 1.72%), Darden Restaurants (DRI -0.72%), and Norwegian Cruise Line (NCLH 0.35%) as vulnerable investments in the near term. Let's see why I think these are three stocks to avoid this week.

A seated woman looking down as the wall behind her depicts a stock chart arrow moving lower.

Image source: Getty Images.

DraftKings

The popularity of online wagering for sports in general and fantasy sports in particular is booming, and that has made DraftKings a speculative winner since going public as a reverse merger two months ago. The stock more than doubled last month, and it's been inching higher in June. 

The problem here, of course, is that there is a void of sports programming to bet on through either DraftKings Sportsbook or its signature fantasy sports platform. The NBA is set to resume its abridged season at Disney World by the end of next month, but with Florida COVID-19 cases on the rise -- and any kind of outbreak within the complex likely derailing the season -- are you as comfortable betting on DraftKings as you are through DraftKings? 

DraftKings may not be so keen on betting on itself. It boosted the size of a secondary offering to 40 million shares priced at $40 last week, and nearly half of those shares came from earlier investors cashing out their chips.

Darden Restaurants

One of the more intriguing companies posting fresh financial results this week will be Darden Restaurants. The parent company behind Olive Garden, LongHorn Steakhouse, and a half-dozen other concepts is a bellwether for the casual dining industry, and it happens to be the first major player to report quarterly results since the pandemic has had a few months to marinade into the new normal. 

Analysts are bracing for a huge loss on a 45% plunge in revenue for the fiscal quarter ending in May. It won't be pretty. Darden's restaurants tried to honor takeout and third-party delivery apps during the disruption, but even now with eateries gradually reopening with social distancing safeguards across the country, it's not business as usual. 

Darden Restaurants suspended its generous dividend in March, but the stock has somehow nearly tripled off its COVID-19 lows. It's going to need a blowout report and a rosy outlook when it reports on Thursday morning to justify its recent surge.

Norwegian Cruise Line Holdings

Let me see if I have this right. Norwegian Cruise Line has now pushed out new sailings across its three brands until October. It's taking as long as 90 days to refund its customers, and that's after making those stranded passengers go through a bit of hoop jumping. It's also the smallest of the three publicly traded players in an industry that isn't going to emerge out of this coronavirus funk the same way as it went in. 

How has this stock nearly tripled since bottoming out three months ago? This is a feat that's even more of a head-scratcher here than it is with Darden. We don't know if cruises will be sailing again this fall. Those goal posts keep moving. Even when passengers are hitting the gangway again we don't know how long it will take for the industry to achieve profitability. If you're looking for safe stocks you won't find them in DraftKings, Darden, and Norwegian Cruise Line this week. 

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Darden Restaurants, Inc. Stock Quote
Darden Restaurants, Inc.
DRI
$125.41 (-0.72%) $0.91
Norwegian Cruise Line Holdings Ltd. Stock Quote
Norwegian Cruise Line Holdings Ltd.
NCLH
$11.40 (0.35%) $0.04
DraftKings Inc. Stock Quote
DraftKings Inc.
DKNG
$15.40 (1.72%) $0.26

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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