- American Software soared 8% last week. The market liked the latest report out of provider of supply chain management and enterprise software solutions.
- Carnival rose 11%. Cruise lines bounced back after sharp recent corrections.
- Finally, Robinhood Markets climbed 10%.
The three stocks averaged a 9.7% increase for the week, as the S&P 500 climbed by just 1.5%. This is only the second time in the past 10 weeks that my stock picks all beat the market, and this time I was blown out. So let's try again: I see Chewy (CHWY 7.29%), Carnival, and Robinhood Markets as vulnerable investments in the near term. Here's why I think these are three stocks to avoid this week.
Pet supplies was all the rage as an investing theme last year, and it's easy to see why. We were adopting pets in droves during the early days of the pandemic, deciding to weather the storm with furry friends that we wouldn't have to leave behind during the day as workplaces and classrooms went virtual.
Chewy was an obvious winner as a fast-growing, customer-focused online retailer. Stocks in this niche may have gotten ahead of themselves last year, which would explain why they're trailing the market in 2021. Chewy enters the new week trading 27% below its February all-time high. It reports its fiscal second-quarter results after Wednesday's market close.
There's a lot to like here. Chewy is growing, with its active customer base expanding by 32% over the past year. It has a sticky platform where shoppers save money by placing subscription orders to be perpetually replenished with their pet faves. However, the first-quarter net sales of $2.14 billion that it posted in early June merely matched the 32% year-over-year increase in active customers. Earlier guidance calls for $2.15 billion to $2.17 billion on the top line for the quarter it will report this week, barely nudging higher on a sequential basis. We've seen other providers of pet supplies, food, and meds languish after reporting earlier this earnings season, and it's hard to be optimistic that Chewy will break the mold this week.
I wasn't planning on keeping Carnival on this list, but the stock's 11% pop last week has changed my mind. The world's largest cruise-line operator is struggling through a sloppy industry recovery, where COVID-19 outbreaks on ships and regulatory fisticuffs are dominating the headlines despite a highly limited number of current sailings.
Things will get better for Carnival and the cruise-line industry, but because the players have taken on so much debt and new shares to keep afloat through the interminable hiatus, the stocks are already back to their pre-pandemic enterprise values. In short, they haven't earned their gains.
There were 301,573 Robinhood users able to buy into the next-gen trading platform's market debut last month through its IPO Access module. They were asked to hold the stock for at least 30 days before flipping it, but I'm sure that many trigger-finger Robinhood users unloaded their positions in the first couple of days when it was a broken IPO, or in the subsequent weeks to cash in on the stock's rally. Panic and prosperity have a funny way of testing your convictions.
This week, the gloves are off. We passed the 30-day window over the weekend, freeing everybody else who got in on the $38-per-share debut to sell their stock without risking getting booted from the IPO Access pipeline for the next 60 days.
It's not much of an incentive to hold for 30 days, and despite the large number of Robinhood users who are now investors -- it is now the most widely owned stock on the platform itself -- the total shares handed out in the IPO Access plan are less than 2% of the total share count. That could still be enough to get folks to reconsider a stock that didn't exactly blow the market out of the water earlier this month, with its first quarter as a public company.
If you're looking for safe stocks, you aren't likely to find them in American Software, Carnival, and Robinhood Markets this week.