In last week's article on three stocks to avoid, I predicted that GameStop (GME 0.19%), Carnival (CCL 3.44%), and SentinelOne (S 2.63%) would have a rough few days.
- GameStop did something it has done just one other time in the past three years: It moved higher the day after reporting quarterly results. Unfortunately for investors of the video game retailer, that was the only day the shares rose last week. GameStop stock declined 6% for the week.
- Carnival fared better than GameStop, but it also went the wrong way. The world's largest cruise line operator sank nearly 1% during the holiday-abridged trading week.
- Finally, SentinelOne was the biggest sinker for the week. The cloud-based cybersecurity specialist put out strong quarterly growth in its latest quarter, but once again its margins continue to disappoint. The stock fell almost 8% for the week.
The three stocks averaged a 5% decline for the week, as the S&P 500 took a 1.7% hit. That's another beat, and the market has come out ahead of my stocks to avoid for 10 of the past 12 weeks. Can I keep the hot streak going? I see Oatly (OTLY 2.30%), Tesla Motors (TSLA 1.49%), and Spirit Airlines (SAVE +0.00%) as vulnerable investments in the near term. Here's why I think these are three stocks to avoid this week.
Image source: Getty Images.
Oatly
It's been a wild ride for Oatly investors since the distributor of oat-based milk, yogurt, and frozen desserts went public at $17 in May. The stock peaked at $29 a month later, but it has given back most of those gains in falling back down to the high teens.
Oatly is growing quickly, but last month's quarterly report was disappointing. The 53% top-line growth was less than analysts were targeting. It also posted another loss. In July, Oatly was hit by a 124-page report from short seller Spruce Point Capital Management, alleging that Oatly has overstated some of its financial metrics as well as its sustainability practices and its growth potential in China. A series of class action lawsuits have emerged in the process.
Some Wall Street pros see this as a buying opportunity. The stock surged 6% on Friday, bucking the general market's decline, after Cowen analyst Brian Holland initiated coverage with an outperform rating. RBC Capital upgraded the stock last month.
The stock is now back above its IPO price, but the bullish cash centers on low-margin growth. There is no doubt that consumers are finding alternatives to traditional dairy products, but oat milk is ultimately a commodity that will only become more competitive over time.
Tesla Motors
A couple of weeks ago, I singled out a stock that I own based on near-term concerns. I'm doing it again this week. I'm a Tesla shareholder and car owner. I think the electric car maker will continue to beat the market over time, but there's a lot riding on Tesla's plans to take a big step in autonomous driving this month.
Drivers have paid as much as $10,000 to unlock the car's full self-driving mode, and Musk mentioned that the beta test should expand later this month to allow all of the premium payers to be able to opt into the platform. The rub is that the updates continue to be buggy. Tesla is well ahead of the competition when it comes to autonomous driving, but a lot of drivers are paying up for a feature they can't fully use -- and Tesla doesn't factor in what customers paid for full-self driving when it comes time to trade in their cars.
Musk even tweeted on Saturday that self-driving is a big reason Tesla's stock is valued at such a steep premium to rival automakers. Tesla bears picked the comment apart, but the bulls may also have some near-term concerns about having so much riding on a feature that's still not ready for primetime.
To be fair, investors are giving us significant credit for achieving self-driving, given that Tesla's valuation/production is very high compared to other automakers
— Elon Musk (@elonmusk) September 11, 2021
Musk suggested months ago, only to come up short, that full self-driving should be in public opt-in beta. With the new date now as early as next week, it could rattle shareholders and Tesla owners alike if Musk fails to deliver. I'm fine holding on to the stock for the long haul, but this month could get challenging.
Spirit Airlines
I've picked on the legacy carriers in the wake of the pandemic, but it's time to take a shot at the low end of the aviation market. Spirit is famous -- or infamous, if you will -- for its dirt-cheap fares where everything from an assigned seat to a carry-on beyond a small personal item costs extra.
The recovery for the airline industry is taking longer than many expected, and the recent surge in COVID-19 cases in the wake of new variants isn't making things any easier. Spirit is losing money right now, like its rivals, and next year's projected profits are contracting quickly as leisure travel has been slow in coming around and corporate travel is toast.
The trend isn't kind. Two months ago, analysts thought Spirit would earn $1.93 a share for all of 2022. A month later, the profit target dipped to $1.86 a share. We're now down to $1.57. Turbulence continues for air carriers.
If you're looking for safe stocks, you aren't likely to find them in Oatly, Tesla, and Spirit this week.
