I took a look at three stocks to avoid last week, predicting that 3D Systems (DDD -0.97%), ExxonMobil (XOM -0.44%), and The GEO Group (GEO -1.06%) were in for a rough few days. I didn't get them all right, but I did come out ahead.
- 3D Systems moved nearly 10% higher, as the 3D printing specialist announced an asset sale and then came through with better-than-expected quarterly results.
- ExxonMobil rose a mere 0.5% for the week, losing badly to the market as the country's incoming president has been vocal about shifting our dependence away from fossil fuels.
- The GEO Group slumped 5% for the week. "The operator of private prisons and other detention centers is going to be on borrowed time if Biden wins the White House," I argued last week, and that's pretty much how it played out in an otherwise buoyant trading week.
The three stocks averaged a nearly 2% climb, and that was weak sauce compared with the S&P's 7.3% surge for the week. Let's see if I can keep the market outperformance going.
For this week, I see Despegar.com (DESP -2.86%), Gogo (GOGO -0.51%), and Gap (GPS -1.49%) as vulnerable investments in the near term. Here's why I think these are three stocks to avoid this week.
One of this week's scariest earnings reports could come from Despegar.com. Running an online travel portal is hard these days, and it's even harder in Latin America -- a region that has some of the biggest COVID-19 case counts on the planet.
Despegar has obviously had a rough year. The revenue it posted in its previous quarter three months ago was less than half of what analysts were modeling. This week's report will also be painful. Making matters worse, Despegar isn't a company that can blame the pandemic for its misfortune. Revenue actually dipped slightly in 2019. There are problems deeper than the coronavirus crisis at Despegar, and it's obviously not going to lick those woes in the current operating climate.
It's been more than two months since Gogo sold its commercial aviation business to a rival. Gogo was once the best-known provider of in-flight internet access, but it's decision to bow out the cutthroat niche is an eye opener.
The market liked the asset sale news, but it's problematic for a couple of different reasons. For starters, Gogo sold the business to Intelsat while the buyer was operating under bankruptcy protection. Ouch. This really is a tough business to crack. The $400 million all-cash deal also raised eyebrows since Gogo commands an enterprise value of $1.8 billion, and the proceeds would only knock off a third of its $1.2 billion in long-term debt.
Gogo will focus its efforts on providing data and services to business jets, but is this a big enough market for Gogo? It reports fresh financials this week, and it's going to be another ugly report. When investors start working the math -- and realize the value of the magic beans that it bought in exchange for its flagship business -- Gogo stock may "go go" lower.
One of the strangest names hitting 52-week highs this week is Gap. The retailer behind Old Navy, Banana Republic, Athleta, and its namesake concepts hit its highest levels since the springtime of last year as momentum builds following its Power Plan 2023 turnaround strategy that was unveiled more than two weeks ago.
Gap sees a return to profitability in the coming quarters, and it's eyeing annual sales growth in the low- to mid-single digits through fiscal 2023. The problem is that after seeing a slight dip in sales last year accelerate to what is shaping up to be 16% slide in fiscal 2020 we're talking about a company that won't be close to where it was last year by fiscal 2023. Gap is rallying around its Old Navy and Athleta brands, but it's also closing roughly 350 stores in the coming years. "Fall into the Gap," may have been the old Gap jingle, but right now it seems as if it's investors falling into the Gap trap.
If you're looking for safe stocks, you aren't likely to find them in Despegar.com, Gogo, or Gap this week.