I took a look at three stocks to avoid last week, and all three of them declined between 2% and 7% for the week. The average pick slipped nearly 5% for the week, far worse than the market's 0.6% slide.
For this week, I see Bed Bath & Beyond (BBBY), Twitter (TWTR), and GameStop (GME 0.10%) as vulnerable investments in the near term. Here's why I think these are three stocks to avoid this week.
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Bed Bath & Beyond
One of the potentially problematic earnings reports this week will be coming from Bed Bath & Beyond. The home-goods superstore retailer will be announcing its fiscal second-quarter results on Thursday morning, just before the market open.
In theory this should be a great time for companies selling merchandise and furnishings for the home. The pandemic is finding us spending more time in our houses, and that's where a lot of money should be spent to upgrade the experience. There are some specialty retailers thriving in this climate, but Bed Bath & Beyond isn't one of them. Analysts see a loss reversing a year-ago profit on a 4% decline in sales.
Investors were braced for a disaster last time out with Bed Bath and Beyond's stores shuttered during the pandemic, and that's just what they got. Sales were cut nearly in half, and the company put out a much larger loss than Wall Street was targeting. It did point out at that sales in June had improved to a decline of 7% for the first month of the fiscal quarter, but this is still likely to be another quarter of red ink and sinking net sales.
There were less than 200 U.S. exchanged-listed stocks hitting fresh 52-week highs last week, and one of them was Twitter. There are a couple of reasons to steer clear of Twitter these days. For starters, its revenue is going the wrong way.
Twitter's top line declined 19% in the second quarter, and when it reports its results for the third quarter ending later this week, analysts see a 12% year-over-year drop. Twitter's popularity isn't slipping, but the ad market makes this a challenging time to monetize cheap traffic. This should be a golden time for Twitter with the upcoming U.S. election stirring up steamy posts from all parties, but that flurry of activity will likely fade shortly after the Nov. 3 polls close. Twitter just had the misfortune of a seasonal spike in a crummy advertising climate.
I'm also concerned about the backlash against social media companies, in general, given how the more popular platforms are being manipulated by folks trying to steer public opinion or drum up general chaos. I think there's a lot to like in Twitter given its growing global wingspan, but social media is becoming a controversial hotbed for all the wrong reasons.
GameStop
One of the more shocking names to see hitting new 52-week highs these days is GameStop. The chain of small-box video game retailers broke into the double digits for the first time since the springtime of last year. The catalyst here is the hot preorder demand for the new PS5 and Xbox Series X consoles that will be hitting the market in time for this year's holiday shopping season.
The reasons for enthusiasm ring hollow. Yes, GameStop's going to sell as many of these systems as it can stock in November. The problem is that hardware is the company's lowest margin business. It has historically scored the lion's share of its profit from software and reselling secondhand games and gear. Unfortunately for GameStop, these new consoles will continue the trend for digital delivery of games, bypassing traditional retailers.
This will still be the third-consecutive fiscal year of both declining sales and red ink for GameStop. The chain has also posted a larger-than-expected loss in three of the past four quarters, calling into question the old bullish thesis that the lean model will survive the market downturn for in-store retail in a video games industry that's bent on bypassing the middleman.
If you're looking for safe stocks, you aren't likely to find them in Bed Bath & Beyond, Twitter, or GameStop this week.
