I took a look at three stocks to avoid last week, predicting that Norwegian Cruise Line Holdings (NCLH -0.77%), Osprey Bitcoin Trust (OBTC -3.24%), and Spirit Airlines (SAVE -2.90%) would have a bad week.
- Norwegian Cruise Line was sailing higher through the first three trading of last week, only to be swept under the waves in the final two sessions. The country's third largest cruise line closed 2% lower for the week. It's still a couple of months away from resuming its sailings, and that restart date keeps getting pushed back.
- Osprey Bitcoin Trust entered the week trading at a ridiculous 152% premium to its Bitcoin (BTC -3.67%) assets. It wasn't sustainable in a world with much cheaper alternatives. I was right this time. Osprey Bitcoin Trust plummeted 40%, but it continues to trade at a wide premium to the Bitcoin tokens it owns.
- Spirit Airlines descended during last week's flight plan, moving 4% lower. It posted disappointing earnings. It served up a larger than expected loss for the period, making it four times out of the last five quarters in which it has missed Wall Street's bottom-line target.
The three stocks averaged a 15% drop for the week, naturally weighed down by the plunge at Osprey Bitcoin Trust. The S&P 500 rose 0.8% for the week. I guess you can say I won this time. This week, I see IMAX (IMAX 1.26%), Gap (GPS -3.83%), and Eventbrite (EB -2.23%) as vulnerable investments in the near term. Here's why I think these are three stocks to avoid this week.
Image source: Getty Images.
1. IMAX
One of the more surprising names hitting 52-week highs last week is IMAX. The provider of super-sized theatrical experiences soared 18% on Friday after posting better-than-expected top-line results.
Revenue clocked in 55% below the prior year's holidays. Analysts were bracing for a 63% plunge. It was a different story on the bottom line where the red ink was more than expected. Success in Asia is helping offset dreadful results in the U.S. market, but this isn't a market that's just going to right itself in a year or two.
The streaming revolution is taking its toll on the multiplex industry. Content suppliers to theaters are now competitors with platforms that need to be fed. IMAX has the advantage of serving up a high-end experience that can't be easily duplicated at home, but a bigger slice of a shrinking pie is not a treat.
2. Gap
Gap is another head scratcher. The apparel retailer is trading at its highest level in two years, and it also popped last week following a market-pleasing report.
Comps were flat in the fiscal fourth quarter, and that is certainly a welcome surprise. A 49% surge in digital sales helped offset a 28% slide in physical store sales. Overall revenue was still 5% lower, as improvements at Old Navy and Athleta couldn't overcome the shortcomings of its Banana Republic and Gap chains.
Gap is talking a good game. It sees sales climbing in the mid- to high teens in fiscal 2021, but that may not get it back to where it was in fiscal 2019. Gap feels that "peacocking" will help spur sales as we claw our way out of pandemic with folks wanting to show off new stores, but is that really going to be necessary when we haven't been seen much in what we've been wearing over the past year?
It's not just the pandemic weighing on Gap. Revenue has declined in four of the past six fiscal years. Consumers are getting their clothes elsewhere, and any upticks will likely prove temporary. Don't fall into the Gap trap.
3. Eventbrite
A recurring theme in this week's list of stocks to avoid is stocks that don't seem worthy of the all-time highs they hit on Friday. Eventbrite fits the bill. The online events ticketing specialist had a rough 2020 with in-person events off the entertainment menu. Eventbrite has been a popular platform to drum up registrations and ticket sales for online events -- 4.6 million in 2020 -- but most of those are free virtual presentations that aren't going to pay the bills.
Eventbrite's revenue fell a lot harder than Wall Street was expecting when it reported fresh financials two weeks ago. A silver lining here is that cost savings it announced 11 months ago will trim $100 million in annualized expenses, but anyone expecting a quick bounce for in-person events after the vaccination process plays out may want to revisit how long it will take for travel restrictions to ease up worldwide and how it will take time for many consumers to warm up to crowded gatherings.
If you're looking for safe stocks, you aren't likely to find them in IMAX, Gap, and Eventbrite this week.
