In last week's article on three stocks to avoid, I predicted that Norwegian Cruise Line (NYSE:NCLH), Walgreens Boots Alliance (NASDAQ:WBA), and Osprey Bitcoin Trust (OTC:OBTC) would have a rough few days.
- Norwegian Cruise Line sank nearly 7% for the week. It's been a rough restart for the cruising industry.
- Walgreens Boots Alliance slipped 8%. Just as its rival tumbled after posting disappointing guidance a week earlier, this drugstore chain also put out poorly received quarterly results.
- Finally, I have Osprey Bitcoin Trust climbing almost 9%. The crypto market is starting to recover, but the premium on this fund has ballooned to 36% of its net assets. There are much-cheaper ways to buy into this market.
The three stocks averaged a 2% decline for the week. The S&P 500 rose 1.7%, so I won again this time. Right now, I see DiDi Global (NYSE:DIDI), Norwegian Cruise Line, and Carnival (NYSE:CCL) as vulnerable investments in the near term. Here's why I think these are three stocks to avoid this week.
It's been a wild ride for China's leading ride-hailing platform. DiDi went public at $14 on Wednesday, and it was a hot debut. The stock opened at $16.65, peaking above $18 before giving back nearly all of its intraday gains. DiDi shares would go on to soar 16% on Thursday, only to tumble on Friday on reports that Chinese regulators were initiating a cybersecurity review of the service. Registration for new users was suspended during Friday's trading, and app stores were instructed to take down the app over the weekend until DiDi corrects the way it collects personal information.
The app store outage should prove temporary, but it's one more thing for IPO investors to worry about. The timing of DiDi's listing was already iffy. Revenue fell 8% last year. The pandemic obviously hurt car-sharing services, but DiDi's revenue also rose a mere 14% in 2019. The long-term potential of ridesharing in the world's most populous nation is undeniable, but right now there could be a few potholes in the road ahead.
2. Norwegian Cruise Line
This summer was supposed to be a welcome-back party for the cruise line industry, but things haven't gone exactly as planned. There have been some well-publicized COVID-19 cases on some initial industry sailings, and the Delta variant has led to global case counts increasing through the past two weeks.
The smallest of the three major cruise lines is the most vulnerable to any hiccups. Cruise line stocks are commanding pre-pandemic enterprise values, so a recovery has been discounted before it's been earned. I don't typically like to pick a stock again after a hit, but I see more near-term downside than upside here.
Shares of Carnival matched NCL's 7% slide last week, and the world's top cruise line is still susceptible. Carnival is a global juggernaut, making it vulnerable to the stubborn recovery from the pandemic in key international markets. Last week the share price took a hit after the company announced it was selling more stock.
The trend also isn't kind. Carnival has posted larger-than-expected deficits in each of the past three quarters, and analysts keep raising their estimates of the deficit that the cruising bellwether will report for all of 2021. A return to profitability next year is possible only if Carnival can have most of its fleet sailing safely in the coming months, and even then it doesn't justify why Carnival's valuation -- on an enterprise value basis -- is roughly where it was before the pandemic shuttered the industry 16 months ago.
If you're looking for safe stocks, you aren't likely to find them in DiDi, Norwegian Cruise Line, and Carnival this week.