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3 Stocks to Avoid This Week

By Rick Munarriz - Jun 1, 2021 at 9:05AM

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These investments seem pretty vulnerable right now.

In my three stocks to avoid article last week, I predicted that Zuora (ZUO 5.24%)Riot Blockchain (RIOT 11.85%), and Grayscale Digital Large Cap Fund (GDLC 3.12%) would have a rough few days.

  • Zuora shares climbed 3% for the week. The provider of cloud-based subscription services served up encouraging quarterly results, slightly beating analyst revenue and profit targets. Zuora's retention rate clocked in at its strongest rate in a year. 
  • Riot Blockchain was the biggest gainer, soaring 19% last week. It was a down week for cryptocurrencies in general, but the week did kick off with B. Riley analyst Lucas Pipes initiating coverage of Riot Blockchain with a buy rating and a $43 price target.
  • Finally, there was Grayscale Digital Large Cap Fund. It inched 1% higher, also defying the dip in digital currencies. The exchange-traded fund owns stakes in five leading cryptocurrencies.  

Those three stocks averaged a 7.7% ascent for the week, fueled primarily by Riot Blockchain's bullish analyst initiation. The S&P 500 rose by 1.2% for the week, so I was wrong. Right now, I see AMC Entertainment Holdings (AMC 5.43%), Riot Blockchain, and Oatly (OTLY 4.29%) as vulnerable investments in the near term. Here's why I think these are three stocks to avoid this week.

A pair of moviegoers asleep at an otherwise empty movie theater.

Image source: Getty Images.

1. AMC Entertainment

It was a big weekend at the movies, and that may give the rally in AMC shares a lift early in the holiday-abridged trading week. It's not likely to last. 

Before you figure this is more of the same from a multiplex permabear, keep in mind that I have had plenty of kind things to say about AMC in recent months. I argued that investors shouldn't bury AMC when it was trading for three bucks and change in late January, just two days before it became a meme stock. I went on to make the seemingly unfashionable move of arguing a bullish case for owning AMC and even making a case for the country's leading exhibitor to be a buyout candidate in the months to follow.  

Finally, seven weeks ago I singled out AMC as a stock that can double again. It did go on to double, and it's on the verge of tripling from that starting line. 

However, with the stock a multi-bagger -- and its share count nearly quadrupling over the past year -- we can no longer assess AMC as a turnaround story. It's trading for more than it was in its prime with an enterprise value of $23 billion. I don't think AMC is going under like so many bears out there, but it's hard for someone who has seen the good in the multiplex operator in the past to continue arguing that it's a fair value here. When the frenzy is done and the bulls and bears move on to fresh playthings this will be less than a $23 billion business.

2. Riot Blockchain

Riot Blockchain may have been bailed out by a bullish analyst initiation last week, but it can't escape gravity forever. Crypto mining is coming under fire for its heavy drain on natural resources, even to the point that it was banned in Iran last week after the country blamed the practice for power outages in some cities. 

I'm a long-term believer in cryptocurrencies, but Riot Blockchain was overvalued even before the market for digital currencies started correcting sharply last month. I see it giving back a good chunk of the gains it scored last week. 

3. Oatly

Oat milk is booming in popularity, making it an opportune time for Oatly to go public. The Oatly IPO was a success, but perhaps it's been too successful. Oatly commands a market cap of $14 billion. Who would pay 30 times trailing sales for a distributor of oat milk-based products?

It's certainly true that Oatly is growing quickly. Revenue more than doubled last year. However, Oatly had to pay up for that growth. Gross margin contracted last year, and its net loss nearly doubled. Plant-based milk alternatives include soy, almond, and now oat, but it currently accounts for less 10% of the global milk market. There's market share for the taking, but ultimately this is just a commodity.

Oalty may be spending a lot of money on savvy marketing and scoring distribution deals, but is there really a difference between Oatly's product and the competition? No one holds a patent to plant-based milk products. It's just a matter of time before the market either demands profits -- and growth will slow dramatically -- or realizes that you don't pay 30 times deficit-saddled revenue for a commodity distributor.

If you're looking for safe stocks, you aren't likely to find them in AMC Entertainment, Riot Blockchain, and Oatly this week.

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool recommends Zuora. The Motley Fool has a disclosure policy.

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Stocks Mentioned

AMC Entertainment Holdings, Inc. Stock Quote
AMC Entertainment Holdings, Inc.
AMC
$23.67 (5.43%) $1.22
Riot Blockchain, Inc. Stock Quote
Riot Blockchain, Inc.
RIOT
$9.11 (11.85%) $0.96
Zuora Stock Quote
Zuora
ZUO
$9.85 (5.24%) $0.49
Grayscale Digital Large Cap Fund LLC Stock Quote
Grayscale Digital Large Cap Fund LLC
GDLC
$9.92 (3.12%) $0.30
Oatly Group AB Stock Quote
Oatly Group AB
OTLY
$3.89 (4.29%) $0.16

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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