I took a look at three stocks to avoid last week, predicting that GameStop (GME -1.98%), AT&T (T -2.22%), and Carnival (CCL -1.99%) (CUK -1.85%) were in for a rough few days. I was wrong on all three fronts.
- GameStop shot 13% higher. The struggling video game retailer keeps hitting new highs, likely the result of a short squeeze given the large number of naysayers. The fundamentals are still going the wrong way. Analysts see next year's revenue clocking in 40% below its 2016 peak.
- AT&T rose 2%. The telco giant impressed the market with strong subscriber growth and better-than-expected revenue.
- Carnival climbed 9% for the week. The world's largest cruise line moved higher after a favorable federal judge ruling.
The three stocks averaged an 8% climb, well ahead of the S&P's 0.5% decline for the week. I failed, and failed badly. Let's see if I can get back on track with my bear-tracking skills.
For this week, I see fuboTV (FUBO -3.62%), Texas Roadhouse (TXRH -2.10%), and Dunkin' Brands (DNKN) as vulnerable investments in the near term. Here's why I think these are three stocks to avoid this week.
It's been a little more than two weeks since fuboTV completed a secondary offering of 18.3 million shares at $10, dramatically broadening the public float of the live sports video streaming platform. The stock begins this new trading week nearly 35% higher since the October stock offering, and that makes it vulnerable.
FuboTV is growing in popularity worldwide, and it sees revenue soaring 50% this year and picking up the pace with an 82% pop in 2021. The problem with the growth in any sports platform -- as ESPN watchers know all too well -- is that sports programming costs aren't cheap. There is a good argument to be made on fuboTV as a disruptor, but eventually it's going to hit the perfect storm of maxing out on the number of people willing to pay big bucks for a ton of sports streaming channels and costly content that it doesn't control.
One of the more surprising stocks hitting all-time highs last week was Texas Roadhouse. Running a casual dining concept is pretty challenging these days, and the 617-unit chain hasn't been immune to the pandemic headwinds.
Texas Roadhouse reports on Wednesday. Wall Street sees a return to profitability in the third quarter, but revenue, store-level metrics, and earnings will be well below where things were a year ago when the stock price was much lower.
Texas Roadhouse has done things the right way. It hopped on the takeout model in March to keep its dining room-shuttered eateries generating some kind of revenue with a skeleton crew. It reopened through May and June with a hybrid operating model that limits indoor capacity, emphasizes to-go orders, and adds outdoor seating where feasible.
The plunge in comps has improved dramatically as spring and summer played out. Unit-level sales through the end of July were made public by Texas Roadhouse in early August.
- April: (46.7%)
- May: (41.9%)
- June: (14.1%)
- July: (13%)
The performance has likely improved through the final two months of the third quarter that it will be it will be discussing after the market close on Wednesday. However, between recession and the pandemic, we're just not heading out to restaurants the way we used to before. With fewer peanut shells on the ground of your local Texas Roadhouse, there is little reason to expect the blowout report that's practically mandated by a stock that has never traded higher than it is right now.
Another eatery chain hitting fresh highs and reporting earnings this week is Dunkin' Brands. The parent company of the namesake doughnut shop and Baskin-Robbins isn't at its best right now. Dunkin' Brands' top line took a 20% in its previous quarter with earnings plunging 38%. Stateside comps plummeted 18.7% at Dunkin' stores, with Baskin-Robbins scoop shops holding up better given a 6% decline.
Things should get better, and just as we're seeing at Texas Roadhouse the comps have gotten less brutal with every passing month. The situation at Dunkin' seems a bit harder to overcome than a traditional restaurant concept because it needs a healthy flow of morning commuters needing caffeinated wake-me-ups and a box of a dozen doughnuts to curry favor with fellow employees. We're not there just yet at this point of the economic recovery.
Dunkin' bulls will argue that as a franchisee model it doesn't have to worry about the unit-level cost burden that comes with sluggish sales, but any franchising platform is ultimately at the mercy of the health of its franchisees. Wall Streets sees a slight dip in revenue and earnings when Dunkin' reports on Thursday morning. It beat analyst profit targets in each of the past four quarters, but it wouldn't be a surprise if it proves mortal. Business will bounce back at Dunkin', but for now the stock had no reason to hit an all-time high on Friday.
If you're looking for safe stocks, you aren't likely to find them in fuboTV, Texas Roadhouse, or Dunkin' Brands this week.