I took a look at three stocks to avoid last week, and I was totally off the mark. For the first time since I started this weekly column in early June, the average return of the three stocks I picked ended up beating the market. It wasn't even close. All three stocks moved higher, clocking in with an average gain of 9%. The S&P 500 edged less than 1% higher.
Now that I've been humbled after killing it for nine weeks in a row, let's see if I can get my bearish sixth sense back on track. I see Despegar.com (DESP 1.88%), SeaWorld Entertainment (SEAS 2.94%), and Tesla Motors (TSLA 4.67%) as vulnerable investments in the near term. Here's why I think these are three stocks to avoid this week.
Travel portals are hurting these days, and the situation is even more problematic in Latin America, where Despegar.com earns its keep. COVID-19 has been brutal in that region. Five of the nine countries with the highest case counts -- Brazil, Mexico, Peru, Colombia, and Chile -- are in Latin America, so you can probably imagine how well the travel industry is faring there.
Despegar reports quarterly results on Friday morning, and they're not likely to be pretty. The rub for Despegar is that it wasn't doing so hot even before the pandemic. Revenue rose a mere 1% in 2018, only to decline 1% last year.
Analysts are bracing for a widening deficit on a 92% year-over-year revenue plunge, and that could be a conservative take. Guidance isn't likely to be very encouraging, either, leaving one to wonder why this stock has more than doubled since bottoming out in March.
One of my bad calls last week was SeaWorld Entertainment. The theme park operator posted financial results on Monday that were as bad as I expected. Revenue plummeted 95% with its attractions closed through most of the second quarter, and SeaWorld posted a larger-than-expected loss for the fourth time in a row. The market responded by bidding the stock 12% higher for the week. That doesn't seem right.
SeaWorld did offer some encouraging words. Attendance trends improved within a month of reopening. However, with attendance between 10% and 50% of prior-year levels -- and most of the patrons being locals who don't spend as much as tourists -- is this really a great report? Wall Street analysts have been widening their deficit forecasts since last week's report. A week ago, analysts thought SeaWorld could return to profitability as soon as the current quarter. Now they don't see an annual profit until 2022. With its larger rivals already taking defensive steps to combat waning patron interest, this probably isn't the best time to bid up a company that has thrown in the towel on this year by pushing to 2021 all of the major coasters it was supposed to open this summer.
A stock split is the hot fashion that all the cool stocks are wearing these days, and Tesla Motors became the latest market darling to announce that it will be participating in this zero-sum stunt. The electric car maker's decision to roll out a 5-for-1 stock split later this month sent the already richly priced shares even higher, soaring 14% last week.
Stocks tend to perform well after a stock split announcement, so history isn't on my side with this call that Tesla could shift into reverse. I just think that Tesla, after nearly quadrupling in 2020, may bump into more resistance than usual ahead of its split at month's end. After all, it's not as if its fundamentals have improved fourfold this year. Revenue even declined in Tesla's latest quarter. The long-term outlook remains bright for Tesla, but sometimes a stock rises too high too soon, and that's why Tesla's my third stock to avoid this week.
If you're looking for safe stocks, you aren't likely to find them in Depegar.com, SeaWorld Entertainment, or Tesla Motors this week.