- AMC lived up to the meme-stock hype. The leading multiplex operator saw its shares soar 139% through the first two days of the abridged trading week, only to shed nearly a quarter of those gains in the following two days as AMC turned to stock sales. The ultimate 83% weekly gain was huge, naturally.
- Riot Blockchain rose 7% last week. The cryptocurrency miner made the most of some stabilizing in the crypto universe after a rough May.
- Finally, there was Oatly, rising a modest 0.5% through the four trading days of last week. The oat-milk products specialist is also starting to stabilize after last month's well-received IPO.
Those three stocks averaged a 30.2% surge for the week, fueled primarily by AMC's smoking run. The S&P 500 rose by 0.6% for the week, so I was left eating popcorn kernels from the sticky theater floor. Right now, I see GameStop (NYSE:GME), AMC Entertainment Holdings, and Carnival (NYSE:CCL) as vulnerable investments in the near term. Here's why I think these are three stocks to avoid this week.
I was burned by meme stocks last week, and going for the mother of all meme stocks this week may seem like a disaster. The fledgling video game retailer has been one of the market's hottest stocks since the beginning of last year. It's a 40-bagger since the end of 2019.
However, a wrinkle in the monster rally is that gravity has a way of catching up to GameStop when it reports fresh financial results. The retailer's stock plummeted 33.8% the day after its last quarterly update. The stock has fallen when it reports fresh numbers in nine of the past 10 quarters, averaging a 12% decline. Investors have experienced double-digit percentage slides in each of the past three reports.
You don't need a cheat code here. GameStop reports on Wednesday. In all but one quarter over the last two and a half years, you've been able to buy it a lot cheaper at the end of the next trading day.
2. AMC Entertainment
I was right in late January that investors shouldn't bury AMC when it was fashionable to bash the multiplex operator. I was right two months ago, when I singled out the exhibitor as a stock that can double again. It has actually gone on to pop sixfold.
But I was wrong last week when I shifted gears, suggesting that AMC was a stock to avoid. It kept soaring, even as it bloated its share count to the point where it has never been as valuable as it was last Wednesday.
Unlike most bulls, I'm not down on AMC. I think it's doing the best it can with the poor hand the multiplex industry has been dealt in recent years. However, valuations matter. AMC's announcement last week that there are now more than 500 million shares outstanding translates into an enterprise value of roughly $35 billion. AMC has secured enough financing to survive in the near future -- now brimming with $2 billion in the bank -- but it's not a business that is worth anywhere close to $35 billion right now.
Cruise lines are ready to begin test sailings as soon as later this month, eyeing a return to revenue-generating voyages later this summer. This is great news for the industry, and that's particularly true for Carnival.
Carnival is the world's largest cruise line. The problem with the positive developments is that this is shaping up to be a "sell on the news" moment. Shares of all three cruise lines have already discounted a recovery. They're all trading for higher enterprise values -- as a result of new debt and freshly minted stock -- than they were commanding before the COVID-19 crisis was on the nautical radar. With a long recovery ahead and no guarantees that we'll avoid a new wave of cruise-related cases as passengers visit ports that aren't as well vaccinated as the U.S. this is an industry that has priced in more than a full recovery when it's not a sure thing.
If you're looking for safe stocks, you aren't likely to find them in GameStop, AMC Entertainment, and Carnival this week.