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%, as a modest 4% gain in one of the three calls was more than offset by declines of 16% and 21%, respectively, with the other two investments. The overall market dipped a little less than 3% for the week.
Let's try this again. I see AMC Entertainment (NYSE:AMC), Nikola (NASDAQ:NKLA), and Macy's (NYSE:M) as vulnerable investments in the near term. Let's see why I think these are three stocks to avoid this week.
Nothing seems to be going right for the country's largest multiplex operator. AMC Entertainment was targeting a mid-July reopening for most of its theaters, and in the past few days the two biggest flicks with late-July release dates -- Tenet and Mulan -- have bumped their multiplex debuts to mid-August.
With indoor spaces a hotbed of COVID-19 transmission, it's going to be a challenge for AMC to get people back to the movies -- especially given that they weren't so keen on it before the pandemic. Shaving per-screen capacity and enforcing face covering requirements will eat into ticket and high-margin concession sales when AMC eventually opens up, but now it's just a matter of time before AMC bumps out its resumption date with coronavirus cases skyrocketing in three states that account for more than a third of the country's box office receipts.
Speculators angling for a ground-floor opportunity with Tesla Motors (NASDAQ:TSLA) proportions have been flocking to Nikola since its market debut in a merger with a special-purpose acquisition company four weeks ago. The superficial comparisons are fair. Nikola and Tesla are working on exciting electric vehicles, and they both have confident if not overconfident CEOs who don't mind sparking a little controversy on social media. They are also both named after the electricity pioneer who feuded with Thomas Edison in the 1880s.
This week Nikola is copying another Tesla move by starting to take $5,000 reservations for an upcoming vehicle, the Badger pickup truck that Nikola expects to start delivering by 2022 with a price tag of $60,000 to $90,000. The problem with the comparison is that Tesla has had years of cranking out plug-in cars. Nikola has experience only in the small market for electric tractor-trailers, and we're still waiting for an actual prototype of Badger beyond the initial renderings. Nikola begins this week with a market cap of nearly $23 billion, a lofty price tag that Tesla didn't command until it had years of growth in the consumer market.
There aren't a lot of companies reporting fresh financials this week, but one that does concern me is Macy's. The iconic department store chain is naturally struggling in the new normal. The pandemic hasn't been kind to apparel in general, but it's been even more cruel to full-price bricks-and-mortar apparel.
We already know that Wednesday morning's earnings call will be rough. Macy's already offered up preliminary financials earlier this month. Sales clocked in at $3 billion, a brutal 45% year-over-year plunge. Its adjusted loss is a mind-boggling $2.03 a share. The real potential dagger this week will be the guidance that it offers up for what promises to be a challenging summer. Its preliminary report related that digital sales have been strong during the shutdown and that 450 stores had reopened as of June 1. It's hard to imagine Macy's offering an optimistic perspective now, with coronavirus cases spiking in many of the larger states where its stores have reopened.
If you're looking for safe stocks, you won't find them in AMC, Nikola, and Macy's this week.