In my three stocks to avoid article last week, I predicted that Wendy's (WEN -0.10%), Celsius Holdings (CELH -1.41%), and Grayscale Digital Large Cap Fund (GDLC 3.44%) would have a rough few days.
- Wendy's rose nearly 3% for the week. Investors got a "major bag alert" after the burger chain posted better-than-expected quarterly results, boosting its guidance for the year. It looks as if breakfast is finally going to stick around after a few false starts, even if it's just 10% of the sales mix right now.
- Celsius was the biggest winner of the three, with a 10% pop. The functional-beverage maker sparkled after posting a blowout financial report.
- Finally, there was Grayscale Digital Large Cap Fund. The exchange-traded fund that owns stakes in five leading cryptocurrencies plunged 10% last week. It was a rough week for digital currencies, and it didn't help that Elon Musk turned heel on the fund's largest investment.
Those three stocks averaged a 1% gain for the week, with the biggest gainer and bigger sinker canceling each other out. The S&P 500 declined by 1.4% for the week, so I was wrong. Let's see if I can get back on track. Right now, I see Despegar.com (DESP 0.18%), Riot Blockchain (RIOT 4.01%), and Grayscale Digital Large Cap Fund 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. Despegar.com
Earnings season starts winding down this week, and one name that could run into some turbulence is Depegar.com. The leading online travel portal specializing in Latin America has nearly tripled off last year's pandemic lows, but we're looking at a longer road back for Latin America's travel industry.
Most of Latin America is still well behind the U.S. in recovering from the COVID-19 crisis, and the economies haven't bounced back as quickly as we're seeing here. The biggest bearish point is that Despegar.com wasn't holding up so well before the pandemic. Revenue rose 1% in 2018, declining slightly in 2019. There were problems here even before a crisis that will set the region's recovery back at least a couple of years. Despegar is Spanish for taking off, but that's not something that the stock itself is likely to do right now.
2. Riot Blockchain
Bitcoin (BTC 3.45%) came under fire last week when Elon Musk announced that the leading crypto would no longer be acceptable as payment for his fast-selling electric vehicles. He called out Bitcoin for the vast amount of energy consumed in mining the digital currency. This was a zinger to Riot Blockchain in two important ways. As a leader in Bitcoin mining, it's going to be susceptible to any potential changes to the way the currency is created.
The other knock is that the price of Bitcoin also dipped on the news. Riot Blockchain is holding 1,771 Bitcoins that it has mined in its efforts. With Bitcoin trading at roughly $48,000 as of Saturday night, Riot Blockchain's tokens were valued at $85 million. It's a big step down for a stake that was worth as much as $115 million when Bitcoin peaked in mid-April. Riot Blockchain -- a company that has generated a mere $12 million in revenue over the past year -- can't justify its $2 billion market cap under this scenario.
3. Grayscale Large Cap Digital Fund
It's true that Grayscale Large Cap Digital Fund's premium did narrow last week. It began the week trading at a 16% markup, and that whittled down to 10% by Friday's close. The long-term bullish argument for crypto is solid, but keeping last week's biggest loser on the list again this week isn't about that necessarily.
Grayscale Large Cap Digital Fund owns five different promising cryptos, but more than 95% of its assets are in cold-stored Bitcoin and Ethereum (ETH 2.69%). Grayscale also manages single-asset trusts that only hold Bitcoin and Ethereum, and those two investments saw their net asset value discounts widen to 17% and 8%, respectively. Why pay a premium for exposure to crypto when the same company has two larger trusts trading at historically wide discounts?
If you're looking for safe stocks, you aren't likely to find them in Despegar.com, Riot Blockchain, and Grayscale Large Cap Digital Fund this week.
