I'm here to take my lumps. I took a look at three stocks to avoid last week, predicting that American Airlines Group (AAL -5.22%), Tesla Motors (TSLA -6.80%), and GameStop (GME -8.87%) were going to have a challenging week. If you followed the GameStop sage you already know how badly I wiped out.
- American Airlines reported a brutal quarter, but it wasn't enough to stop the high-flying shares. The stock soared nearly 9% for the week.
- Tesla was the lone stock to slide, shifting into reverse for a better than 6% decline. It was a rough week for the country's fifth most valuable company by market cap, falling short with its quarterly earnings report.
- GameStop -- oh, GameStop -- you sank my battleship. The video game retailer skyrocketed 400%. I'll have some more to say about GameStop shortly, but wow did I get this one wrong.
The three stocks averaged a 134% advance. I blew it, of course. Naturally the S&P 500's 3.3% dip fell well short of GameStop's hedge fund-smashing run. This week, I see ExxonMobil (XOM -1.58%), Chuy's (CHUY -4.80%), and GameStop as vulnerable investments in the near term. Here's why I think these are three stocks to avoid this week.
If you want to know what's fueling ExxonMobil these days check back on Tuesday morning when the oil and gas giant reports its fourth-quarter results. It's not going to be pretty. Analysts see ExxonMobil barely breaking even on a 27% year-over-year plunge in revenue.
What ails the industry bellwether that at one time commanded the country's largest market cap isn't a mystery. Oil demand has tanked, taking prices down in the process. The pandemic obviously is only hurting our drive time, but improving gas efficiency in cars and a global shift to electric vehicles make it hard to buy into a bullish scenario for ExxonMobil. The stock didn't lose more than 40% of its value last year by accident.
Activists are rattling the boardroom, but these aren't the kind of activists that will increase shareholder value. These activists want ExxonMobil to beef up its sustainability initiatives and reduce its carbon footprint, noble endeavors but naturally things that won't improve its fundamentals.
ExxonMobil's 7.6% yield is going to turn heads, but that's dangerous when you should be looking at the road ahead. ExxonMobil hasn't raised its dividend in two years, and with many of its peers recently slashing payouts we know which way these distributions are heading. ExxonMobil will try to spin its sluggish ways and paint a rosier picture of the future, but all I see are fumes.
When shares of Chuy's hit fresh 52-week highs late last week I probably wasn't the only one scratching my head. I am mostly a fan of the Tex-Mex casual dining chain. Keep a steady supply of tortilla chips and creamy jalapeno dipping sauce coming and I'm a happy camper. The problem here is where Chuy's is on its turnaround.
There are only a couple of publicly traded eateries that have turned the corner in this climate, and Chuy's isn't one of them. Analysts see revenue plummeting 25% for both its latest quarter and all of 2020. It hasn't been able to hop on the digital ordering platform with the same success as some of the market leaders. Growth has slowed to a crawl for the 92-unit chain, and recently it closed all of of its three locations in the Miami market after jumping into the area just three years ago.
I'll start with any disclaimer that is probably necessary in talking about this particular stock: GameStop is a dangerous stock to own. It's an even more dangerous stock to short. Value investing icon Benjamin Graham famously said that in the short run the market is a voting machine, but in the long run it's a weighing machine. Right now the polls are undeniably open.
GameStop is a cause more than an investment. It's not a $13.5 billion company by any realistic valuation metric. GameStop stock's underlying investment isn't a business right now. It's a message. Moreover it's an evolving message.
A whopping 558.9 million shares were traded last week for a stock with 69.7 million shares outstanding. The same shorts that retail investors were hating a week ago have been squeezed out. Those long the stock that had made their shares available have moved on, too. For all of the "hold the line" rhetoric, the volume suggests that speculators are just playing with the stock before flipping it within a day or two. There's a larger story that will play out over time, but with story itself continuing to change rapidly there will come a time when the polls close and the weigh scales roll back into place.
If you're looking for safe stocks, you aren't likely to find them in American Airlines, DoorDash, or GameStop this week.