I took a look at three stocks to avoid last week, predicting that Airbnb (ABNB 2.41%), Door Dash (DASH 0.54%), and Disney (DIS 0.16%) were going to have a challenging week. I fell short of the mark.
- Airbnb rose 13% for the week. Encouraging vaccine news had investors optimistic on a return to travel normality sooner rather than later.
- DoorDash was the other hot IPO the week Airbnb hit the market. It cooled off this week, down 5%.
- Disney slipped nearly 2% for the week. There was no negative news on the stock, but investors decided to take some profits after the prior week's Disney+ rally sent the shares to all-time highs.
The three stocks averaged a gain of 2%, fueled entirely by Airbnb's rise. The S&P 500 rose just 1.3% in that time. I was right about two of the three stocks, but the ultimate scorecard shows that I lost this time. For this week, I see Airbnb, Moderna (MRNA -0.92%), and Cintas (CTAS 0.12%) as vulnerable investments in the near term. Here's why I think these are three stocks to avoid this week.
I'm going back to the well with Airbnb. The stock has moved higher in its first two calendar weeks of trading, but I'm suggesting that the third time will be the charm. Airbnb is approaching a $100 billion market cap despite a business that has shed nearly a third of its revenue through the first nine months of this year.
Even before the COVID-19 crisis, we had losses widening and top-line growth decelerating through 2019. There's no denying that Airbnb is the leader in a short-term rentals trend that's disrupting the hospitality industry. The problem is that it's risen too high too soon.
Just three days into its tenure as a publicly traded company, Airbnb received its first downgrade. Robert Mollins at Gordon Hasket initiated Airbnb with a buy rating and a $77 price target just before its market debut. With the stock more than doubling out of the gate, Mollins recommends moving to the sidelines. He now has the stock tagged with a bearish underperform rating. His new $103 price target is well below where the shares are now.
That's just one voice, of course. Apparently, a lot of investors think a company with $3.6 billion in trailing revenue -- and shrinking, for now -- is worth a 12-figure market cap. I think that kind of premium has to be earned over time.
I feel like the Grinch adding Moderna to this week's list. It became the second company in the U.S. to roll out its COVID-19-tackling vaccine. Moderna received basically unanimous approval from the FDA advisory committee late last week -- 20 members voting in favor, one abstaining from the vote -- for its treatment under an Emergency Use Authorization.
Moderna is the smallest of the players with a potentially viable vaccine to put an end to this year's costly pandemic. Early investors have been rewarded handsomely, a seven-bagger in 2020 alone. This brings us to the same situation we're seeing with Airbnb, where euphoria has gotten ahead of the fundamentals. If you thought Airbnb's revenue multiple was insane, consider that Moderna's market cap is now up to $55 billion for a company with less than $250 million in trailing revenue. The COVID-19 vaccine will provide a one-time boost, but where does Moderna go from here? The publicity is platform-affirming, and there is promise in the pipeline. However, this stock has a "sell on the news" veneer where profit-taking wouldn't be a surprise in the coming weeks now that the favorable development have materialized.
There are only a handful of companies reporting earnings during this holiday-abridged trading week, but one of them is Cintas. This is the top dog in uniform rentals. Beyond freshly cleaned corporate identity apparel it provides a wide range of office products and services.
The pandemic has left its mark on Cintas. Revenue is expected to decline for the third straight quarter in Tuesday's report. But despite its cloudy near-term prognosis, Cintas is actually a market darling. It has come through with better-than-expected earnings in each of the past four quarters. Cintas has also increased its dividend 37 years in a row, making it a member in good standing of the Dividend Aristocrats Club.
The problem with Cintas is that the stock is trading near all-time highs despite still having to prove that it will be as relevant in the future as it was before the pandemic. With more people working from home and companies becoming more efficient, will we really be going through the same volume of Cintas uniforms and office services in the future? The stock's meager 1% dividend yield isn't enough to woo income investors, and it's hard to justify paying nearly 40 times forward earnings for Cintas.
If you're looking for safe stocks, you aren't likely to find them in Airbnb, Moderna, and Cintas this week.