Every weekend over the past few months I've been trying to single out three stocks that will lose to the market in the week ahead. My three stocks to avoid last week were all over the place -- declining 7%, climbing 3%, and rising 4% -- averaging out to a goose egg as the loser's 7% decline was exactly offset by the smaller gains on the other two picks.
The S&P 500 took a 0.6% hit for the week, so I lost for what is just the third time over the past 13 weeks. Can I get back on track? This week I see Oatly ( OTLY -2.79% ), Stitch Fix ( SFIX 0.96% ), and American Airlines Group ( AAL -4.59% ) as vulnerable investments in the near term. Here's why I think these are three stocks to avoid this week.
The lone sinker in last week's list was Oatly, sliding 7% as the company behind oat-based milk, yogurt, and frozen desserts faces valuation concerns following an initially well-received springtime IPO. Last week's slide sent it buckling below its initial May pricing of $17.
The stock is more attractively priced than it was a week earlier, but the math is still not kind. Is a company putting out a branded commodity really worth a $9.6 billion market cap on trailing revenue of just $528 million?
Oatly is growing fast as consumers embrace oat-based dairy alternatives, but the entire niche is booming to the point where it will attract cutthroat competitors drawn to the market opportunity. With little differentiation between the products, is a brand name enough to stand out in this low-margin market? Oatly has struck some smart distribution deals and it's ramping up its production volume, but it's hard to justify paying 18 times trailing revenue for a company in its situation.
There are only a handful of companies reporting fresh financial results this week, but one name that has me intrigued is Stitch Fix. It was a market darling last year, but the provider of curated wardrobe selections has shed more than two-thirds of its value since peaking in the triple digits back in January.
A lot has happened to Stitch Fix these days. It has brought in new leadership, and like most apparel-delivery specialists it has had to deal with supply constraints and spikes in fulfillment costs. However, the real threat it faces now is that shopping malls are starting to reach pre-pandemic levels again.
Stitch Fix was a smart choice for consumers in a pandemic willing to pay a premium for fashionista-advised e-commerce. With those same 4.1 million active clients itching to hit stores again, can it continue to hold up? Something else to watch were reports last month that a third of its stylists quit after the company enforced an end to its flexible scheduling policy. It will certainly be addressed during the call.
Analysts see a narrowing quarterly loss on a 24% year-over-year increase in revenue when Stitch Fix reports on Tuesday. The stock is depressed now, so even a whiff of good news can send the shares moving in the right direction again. It still has a lot to prove so it makes the cut until there's a fix for Stitch Fix.
There was some turbulence on social media for the legacy carrier last week after a video went viral of a mom and her family who were booted off a departing American Airlines plane after her two-year old toddler wasn't properly wearing a mask while experiencing an asthmatic attack. It was not a good look for the already struggling airline.
There are two sides to every story, and American Airlines did respond to the matter. The air carrier claimed that the crew wasn't informed of the young passenger's asthmatic condition during the incident. American Airlines also pointed out it wasn't just the mask issue, as the family was not complying with crew member requests to remain seated while on an active taxiway. The party was rebooked on a later flight without incident.
Obviously a single flight hiccup isn't reason alone to put American Airlines on this list. The real rub is that the airlines industry in general and American Airlines in particular have had a hard time getting back on track in the new normal. Revenue for American's latest quarter is still 21% below where it was for the same period two years ago. With corporate travel unlikely to make a full recovery and travel restrictions and pandemic-safety concerns keeping leisure travel in check, it's going to be a bumpy flight for American and its peers.
If you're looking for safe stocks, you aren't likely to find them in Oatly, Stitch Fix, and American Airlines this week.