I took a look at three stocks to avoid last week, predicting that Blink Charging (BLNK 1.04%), DoorDash (DASH 1.04%), and GameStop (GME -4.95%) were going to have a challenging week. It went horribly for me this time.
- Blink Charging declined 6% last week. The electric vehicle charging specialist continues to be one of the market's biggest gainers since the start of last year, but a step back works for my weekly column. What can go wrong with the other two panned picks?
- DoorDash climbed 3% for the week. The leading takeout delivery app inched higher, but in a week when the S&P 500 index rose 2% I'm still ahead with the combined return of the first two picks. There's no way I missed this week. Right?
- GameStop soared 83% -- yes, 83% -- during the holiday-shortened trading week. There was no material news on the stock, but given the huge short interest on the video game retailer it's fair to say that another short squeeze was afoot.
The three stocks averaged a 26.7% advance. Naturally the S&P 500's 1.9% ascent is no match for that kind of run. I was wrong. This week, I see American Airlines Group (AAL -1.08%), Tesla Motors (TSLA 0.49%), and GameStop as vulnerable investments in the near term. Here's why I think these are three stocks to avoid this week.
American Airlines Group
We're in the heart of earnings season, and there are hundreds of companies reporting their quarterly results. American Airlines checks in on Thursday, and if you see the "fasten your seatbelt" light go on it's only because things are going to get bumpy as the the stock continues its trajectory of descent. We know that airlines are having a rough time in the new normal, and American Airlines in particular has been a mess.
Revenue is expected to plummet 66% for the quarter that ended last month. Analysts see a huge loss of $4.11 a share, but don't be surprised if it's worse. The red ink here has been more than what Wall Street was expecting in two of the past three quarters. It's burning through roughly $30 million a day in its current state.
The market sees American returning to profitability by 2023, but there's little to get excited about now. Consumer travel will continue to languish until the pandemic is crushed globally. Business travel will take even longer than that -- if it comes back at all.
Unlike the other two names on this list it's easy to see Tesla Motors beating the market this year. Its business is booming. It's hard to find a more aspirational brand in the realm of electric vehicles. However, with Tesla shares so strong heading into this week's earnings report it's easier to see the stock taking a breather even if it does come through with another strong report.
We already know how Tesla's production and deliveries played out for the quarter. The stock has more than doubled since its third-quarter results were announced three months ago. A lot of the report's success is already baked into the stock. Tesla reports on Wednesday. It's going to be a wild week.
With the kind of run that GameStop had last year and so far in 2021 it's almost hard to forget that this is a company in an irreversible state of decline. Gamers have gone digital, and outside of the one-time blips when a new console is released GameStop's stores will continue to suffer.
Holiday sales were slightly positive for the small-box video game retailer, but that was the handiwork of big-ticket and unfortunately for GameStop low-margin PS5 sales. Those gamers won't be back. They know they can download games, and even for disc-based purchases there's usually a better price online. Sales have fallen sharply for three straight fiscal years, and there is no reason to expect that trend to reverse anytime soon.
Why is GameStop stock at an all-time high with its sales at a 12-year low? The answer is a short one -- as in short interest. There's roughly as many shares of GameStop sold short as there are shares outstanding. It doesn't take a lot to get the shorts running for the hills, and closing out those positions triggers a wave of buying. It's dangerous to short GameStop here, but it's even more dangerous to own the stock after huge gains that it did not earn.
If you're looking for safe stocks, you aren't likely to find them in American Airlines, DoorDash, or GameStop this week.