I took a look at three stocks to avoid last week, predicting that Carnival (CCL 0.18%), BowX Acquisition (BOWX), and Blink Charging (BLNK 0.21%) would have a bad week.
- Carnival stock sailed 9% higher. Its financial update wasn't anything to write home about, but Florida began to fight back against the Centers for Disease Control and Prevention to get sailings resuming out of the Sunshine State this summer.
- Shares of BowX Acquisition were flat in an otherwise buoyant week for the market. Investors are starting to remember why the market destroyed a potential WeWork IPO two years ago. It was the one stock I said you should avoid that actually lost to the market last week by simply marching in place.
- Blink Charging rose 7%. Encouraging electric-vehicle ownership is a big part of President Biden's infrastructure overhaul, but it remains to be seen what this means for tiny retail charging-kiosk operators.
The three stocks averaged a healthy 5.3% gain for the week. The S&P 500 actually rose by a respectable 2.7% last week, but that was half as well as these stocks fared. I missed the mark. Let's see if I can turn things around. This week, I see Delta Airlines (DAL 0.96%), Norwegian Cruise Line (NCLH 1.29%), and Carnival 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. Delta Airlines
There are only a handful of companies reporting financial results this week, but one that's bound to get "fasten your seat belt" turbulent is Delta Airlines. In good times Delta is one of the better legacy air carriers out there, but there's a lot not to like these days heading into another rocky financial update.
Analysts see Delta Airlines posting a sharp quarterly deficit on a 53% plunge in revenue on Thursday. If a loss of $2.83 a share sounds pretty bad, keep in mind that Delta has posted a wider deficit than what Wall Street pros were expecting for the last three quarters. Spoiler alert: Rising jet fuel prices is going to make things even worse than you probably think.
If Delta Airlines was some beaten down stock another rough quarterly update wouldn't be a foundation rattler, but the shares are flying high these days. Delta's long-term debt has more than tripled over the past year, and that is pushing its enterprise value to nearly $54 billion. Go all the way back to the end of 2019 -- when the economy was humming along and there was no legit fear of COVID-19 turning into a global travel stopper -- and its enterprise value was just $46 billion. The valuation is out of whack for a recovery that will take longer than bulls probably think.
2. Norwegian Cruise Line
Cruise line stocks have been rallying on a potential return to sailing later this year, but the industry shares appear to have outrun the fundamentals. Even if the cruise ship operators get their fleets back online as early as July it will be with limited sailings and a lot fewer passengers. Demand is going to be another issue, especially since international travel restrictions will limit both the pool of passengers as well as the port-of-calls available.
As the smallest of the three largest players here, it's easy to see why Norwegian Cruise Line is the most susceptible to a shakeout. It's going to take a long time before consumers have forgotten about the dozens of onboard deaths during the pandemic, and even diehard cruising fans have grown frustrated with cruise cancelations and slow refunds.
Norwegian Cruise Line also suffers from the same valuation head scratcher as Delta. As a result of all of the new stock and fresh debt that Norwegian Cruise Line has taken on over the past year its enterprise value is actually higher than it was at the end of 2019 when we were in an expanding economy with no travel restrictions. If a bull can explain why Norwegian Cruise Line is worth more now than in 2018, when it was at peak earnings and margins shape, or 2019, when revenue topped out, I'm all ears.
3. Carnival
I was burned by calling out the world's largest cruise line operator last week, but after it posted a 9% gain last week, I think it's vulnerable. Carnival isn't as problematic as Norwegian Cruise Line is at this point, but it's also been moving higher on rosy assumptions of a quick resumption to cruise travel and a smooth turnaround that aren't likely to play out that way in the near term.
Carnival has the scale that Norwegian Cruise Line lacks, and it tackles the entry-level market that will benefit more than its smaller rival in wooing first times with incoming stimulus checks and tax refunds. I still don't think either company should be worth what it was in late 2019, before the industry started falling apart.
If you're looking for safe stocks, you aren't likely to find them in Delta Airlines, Norwegian Cruise Line Holdings, and Carnival this week.
