I took a look at three stocks to avoid last week, predicting that DraftKings (NASDAQ:DKNG), Nano-X Imaging (NASDAQ:NNOX), and GoPro (NASDAQ:GPRO) were cruising for a bruising. I generally fared pretty well.
- DraftKings fell every single trading day last week, ultimately shedding more than 23% of its value. A secondary stock offering knocked the stock early, but then having the NFL season start to come apart at the seams by way of COVID-19 outbreaks didn't help.
- Nano-X Imaging continues to be volatile. Every up day was followed by a down day -- and vice versa -- last week. The stock slipped nearly 2% for the week.
- Paychex did move higher, climbing almost 4%. The payroll leader came through with much better-than-expected earnings on Tuesday, but even Paychex's 3.7% gain was dwarfed by the market's 3.8% ascent.
The three stocks averaged a 7% decline, with DraftKings holding the trio back. The S&P rose 3.8%. It's fair to say I won that round, but let's go on to this week.
For this week, I see GameStop (NYSE:GME), Intuitive Surgical (NASDAQ:ISRG), and GoPro (NASDAQ:GPRO) as vulnerable investments in the near term. Here's why I think these are three stocks to avoid this week.
The leading small-box retailer of video games had a ridiculous and ultimately unsustainable 44% surge on Thursday. The fading chain got a boost after announcing that Microsoft (NASDAQ:MSFT) tools would firm up GameStop's back-end and in-store operations.
GameStop will switch to Microsoft Teams and other analytical and productivity tools. It will arm its employees with Surface tablets. So far this seems like a small win for Microsoft and a non-event for GameStop, and it gets even more strange. The expanded partnership also means that GameStop will start selling Xbox All Access, a financed bundle wherein diehard gamers pay between $23 and $35 a month over two years for a new Xbox console and 24 months of the Xbox Game Pass Ultimate.
The head-scratcher is that this Xbox pass feeds gamers a massive catalog of more than 100 digitally delivered games. It's cutting GameStop and other physical distributors from the process. Even if GameStop gets a piece of the action, this is all about weaning folks off discs and cartridges, highly problematic since GameStop's chunkiest margins lie in physical software and the resale of physical software. GameStop shares retreated 10% on Friday, but that's probably just the beginning of the market's coming to its senses.
I am a big fan of Intuitive Surgical and how its da Vinci robotic arm has raised the bar -- literally and figuratively -- in generating better outcomes for patients as a result of its more precise surgical incisions. However, there's no denying that the pandemic has been hard on Intuitive Surgical. Patients with elective procedures are being put on the back burner, and the same can be said about hospital interest in ordering the efficiency-boosting machines.
Revenue fell 22% in the second quarter, as a 19% decline in da Vinci procedures performed and a 35% plunge in shipments sank its performance. When Intuitive Surgical reports its third-quarter results on Thursday afternoon, it's expected to be another dud. Revenue and earnings per share are expected to decline 14% and 41%, respectively.
I'm a bull on Intuitive Surgical for the long haul. However, with the stock already more than doubling since its mid-March bottom and kicking off this new trading week just 5% away from its all-time high, I'm less than enthused about the market's potential reaction on Friday. Intuitive Surgical will earn these gains in the future, but it's not at that point right now.
GameStop has no business hitting a 52-week highs, and among the nearly 700 U.S. exchange-listed stocks to notch high-water marks last week, another one that stands out to me is GoPro. The leading maker of action cameras moved higher after announcing that strong demand for its new HERO9 camera sent its premium subscriber base cracking the 500,000-member ceiling.
The subscription provides unlimited cloud storage, live streaming, and other perks. I just wouldn't confuse this achievement with GoPro reborn as a digital subscription rock star. This will still be the fourth year in the past five with declining revenue for GoPro. Despite all of the buzz HERO9 is generating since its launch last month, analysts still see revenue plummeting 26% this year.
There's no reversal here of the multiyear trend away from action cameras, with multipurpose smartphones continuing to improve their cameras. GoPro isn't going away without a fight, but reality isn't as flattering as a round subscriber milestone.
If you're looking for safe stocks, you aren't likely to find them in GameStop, Intuitive Surgical, or GoPro this week.