I took a look at three stocks to avoid last week, and two of them moved sharply lower. The third stock inched slightly higher, but the average move for all three investments was a decline of nearly 10%. The general market was essentially flat for the week.
It's a new week, and I see Avis Budget Group (NASDAQ:CAR), AMC Entertainment (NYSE:AMC), and DraftKings (NASDAQ:DKNG) as vulnerable investments in the near term. Here's why I think these are three stocks to avoid this week.
This year has been a wild ride for Avis Budget investors. Shares of the auto rentals giant began the year trading just above $32, reversing all the way down to the mid-single digits by mid-March, only to surge 364% from its low to find itself nearly back to where it was when the year began. This is the equivalent of renting a car, trashing it, and then returning it back to the Avis lot.
This is not a good time to be buying any car rental specialist. Its largest rival, Hertz (OTC:HTZG.Q), declared bankruptcy, and while speculators chasing that stock are doing so without understanding the Chapter 11 process, the same can be said about new Avis Budget investors. Folks buying Avis Budget because they think it will benefit from the Hertz filing may want to think that through. Current Hertz shareholders are likely to get wiped out, but creditors will probably drive away with a reorganized company with a healthier balance sheet.
Avis Budget itself is also in a world of hurt regardless how the situation plays out for its cash-strapped rival. It reports quarterly results on Tuesday afternoon and discusses its numbers in an earnings call on Wednesday morning. Things won't be pretty, as analysts see a huge loss on a 69% year-over-year plunge in revenue. The leisure and corporate travel markets are in a funk, and either segment will take several years to truly recover to where we were last year. Why is this stock practically back to where it was before the COVID-19 headlines rocked the world?
Theatrical release dates are a lot like cruising industry timelines right now. Hollywood studios and cruise line operators keep pushing out their resumption dates, only to repeat the process a few weeks later. AMC and its smaller multiplex rivals are in a big hole. Makers of big-budget productions don't want to release new flicks until they're assured that folks will come to local theaters in large numbers -- and that's not happening anytime soon.
There's no silver lining for the silver screen business these days. Required face coverings and social distancing make running a theater a bad business proposition. AMC was hoping to open most of its theaters earlier this month, but now it's settling for mid- to late August. The chances are slim that you're sitting in a spaced-out multiplex next month watching anything other than an older movie as a novelty. This interruption is longer than the ads playing before the last time you made it out to an AMC screening -- if you can remember that far back.
Major League Baseball just came back late last week, and the NBA restarts its abridged hoops season later this week. It's a good time for sports, and that has investors flocking to DraftKings. The leader in fantasy sports wagering with a strong sportsbook business for old-school gamblers is hoping to cash in on armchair fans who think they have the inside track on which teams will win or which players will excel in any given matchup.
DraftKings has nearly doubled since going public as a reverse merger three months ago. It has the advantage of scalability, attracting 720,000 monthly unique paying customers across its betting platforms. I think it won't be able to live up to the hype. I've seen some baseball and a couple of basketball scrimmages over the past few days, and I'm not getting into it. The two legacy fantasy football leagues that I'm in that are typically already chatty with trade talk and drafting strategies are dead. I get why the leagues are starting back up, but it's hard to buy into empty stadiums and arenas. The fan face cutouts and piped-in crowd noises are creepy. It's hard to get hooked knowing that any COVID-19 outbreaks among the players can derail any of the restarting efforts. I like DraftKings as an investment when things get back to normal, but since that's not happening anytime soon, I think it's best not to buy into the hype.
If you're looking for safe stocks, you aren't likely to find them in Avis Budget Group, AMC, and DraftKings this week.