I took a look at three stocks to avoid last week, predicting that Blink Charging (BLNK -1.15%), Baidu, and Lyft were going to have a challenging week. I missed.
- Blink Charging energized bulls with a 3% gain, more than making back the setback it experienced earlier in the week.
- Baidu shares soared 11% last week. The online search giant was never a threat to be delisted as part of the executive order to bump Chinese telcos from U.S. exchanges this month, but my theory that the measure would cause pain to all Chinese growth stocks in the near-term proved to be incorrect.
- Lyft was the only one to slide. The country's second largest player in personal mobility shifted into reverse, declining 3% for the week.
The three stocks averaged a 3.7% advance. The S&P 500 moved 1.8% higher in that time, so the three stocks I picked to tumble more than doubled the market's return. I was wrong. This week, I see Blink Charging, Tesla Motors (TSLA 4.72%), and Delta Airlines (DAL 0.39%) as vulnerable investments in the near term. Here's why I think these are three stocks to avoid this week.
One of last year's hottest stocks inched higher last week. I thought it was overvalued a week ago, and naturally Blink Charging is even more expensive now. The provider of electric car charging stations is trading at more than 400 times its trailing revenue of $4.5 million.
Blink Charging will grow in the coming years as demand for charging electric vehicles intensifies, but it will take years before Blink Charging justifies a $1.8 billion market cap. Blink Charging is simply riding the coattails of Tesla's surge right now, but unlike Tesla with its differentiated product Blink Charging is toiling away in what will be a commoditized market in the future.
The market's favorite electric car company isn't slowing down in 2021. Shares of Tesla soared 25% in the first week of the year, and the catalyst is pretty clear. Record deliveries in the fourth quarter helped spark the surge, and investors are also piling into the buoyant shares after Tesla's inclusion into the S&P 500.
Tesla Motors is a great company, and Elon Musk surpassing Jeff Bezos to become the world's wealthiest person is a big milestone. However, is Tesla really worth its $834 billion market cap? There are now just four companies worth more than Tesla in this country.
Don't bet against Tesla's long-term potential. The short-run potential is a different story. The strong fourth quarter it will announce in a couple of weeks is already discounted. Last month's induction into the S&P 500 triggered a wave of institutional ownership, but now Tesla is more susceptible to the whims of investor demand for index funds. A pullback shouldn't surprise anyone, and it's not necessarily a bad thing for the bulls.
There are only a handful of companies reporting earnings this week, but the one that concerns me the most is Delta. The air carrier had a rough 2020. Leisure and corporate travel have taken a big hit, and with COVID-19 cases spiking during the typically busy holiday travel season it's not going to be a strong report.
Every analyst covering the stock sees a sharp loss when Delta reports on Thursday. The consensus estimate calls for a 68% year-over-year plunge in revenue. Delta is one of the better run airlines out there, but this is an industry you may want to avoid right now.
If that doesn't sway you, let's take a different angle here. Delta shares have plummeted 31% since the beginning of last year, and that's not a surprise given the huge impact that the pandemic has had on the travel market. Delta and many of its peers have issued new stock and bond to stay afloat, and that's bloating share counts and debt levels. The end result is that while the stock has taken a 31% hit since the start of last year the enterprise value has only declined 13%. I don't think investors realize that Delta stock isn't worth 31% less than it was a year ago just because that's what the stock chart indicates.
If you're looking for safe stocks, you aren't likely to find them in Blink Charging, Tesla Motors, or Delta Airlines this week.