I took a look at three stocks to avoid last week, and I got smoked. It was a buoyant market, with stocks moving 3.3% higher. However, the three stocks I suggested investors avoided rose by an average of 5%.
Let me try again. I see Apple (AAPL 0.09%), Tesla Motors (TSLA +2.59%), and Macy's (M 2.22%) as vulnerable investments in the near term. Here's why I think these are three stocks to avoid this week.
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Apple and Tesla Motors
I am going to lump the first two picks together because they follow the same thesis. Both market darlings begin trading on a split-adjusted basis on Monday morning, and the shares seem to have outpaced their fundamentals in anticipation of this event.
Apple and Tesla have seen their stocks soar roughly 30% and 60% respectively since announcing their stock splits a few weeks earlier, but have they really earned those upticks? Apple's stellar run over the past year finds it trading at nearly 40 times this year's earnings, way above its historical multiple and a bit lofty for a company that has posted double-digit revenue growth just one over the past five fiscal years. Tesla's revenue over the past year has risen a mere 3%.
The future will be brighter for Apple and Tesla. Apple's services business is booming, and despite widely expected to continue losing market share to Android, there could be a spike in demand as 5G iPhones hit the market. Tesla is definitely going to accelerate with the heavy demand for its widening product line of electric vehicles.
I get it. I own Apple stock, and my portfolio is better for it. I am kicking myself for not following many of my fellow Fools into Tesla Motors. I still think that there will be a "sell on the news" moment following the stock split given the huge surge for what is financially speaking a zero-sum event. The stocks may initially surge on Monday morning, with investors hopping on the lower split-adjusted prices, but gravity and reality should kick in as the week plays out.
Macy's
I hate kicking bricks-and-mortar retailers when they're down, but of the handful of companies reporting financial results this week, this is the one that stands out to be as being a potential troublemaker. Macy's isn't what is used to be. Sales have declined in four of the past five fiscal years, and that was with a booming economy. There is little reason to expect a turnaround now that we're wading through a recession.
The glimmers of success that Macy's has had lately are for off-price and margin-gnawing moves like the expansion of its Backstage deep discount concept that will only cannibalize its higher margin full-priced merchandise. Analysts see a big loss on a 37% plunge in sales when it reports on Wednesday morning, but Macy's fell woefully short of Wall Street's top-line target last time. If Macy's is able to somehow impress investors this week it would be a miracle on 34th Street.
If you're looking for safe stocks, you aren't likely to find them in Apple, Tesla Motors, or Macy's this week.
