Please ensure Javascript is enabled for purposes of website accessibility

3 Stocks to Avoid This Week

By Rick Munarriz – Oct 11, 2021 at 8:05AM

Key Points

  • Fastenal reports quarterly results on Wednesday. An analyst downgrade on Friday suggests it won't be a good report.
  • Renren shares soared 75% last week. A step back for the Chinese growth stock is warranted.
  • Robinhood is another rough week away from becoming a broken IPO.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

These investments seem pretty vulnerable right now.

I've been picking stocks to avoid every week, and I fared pretty well last time. My three stocks to avoid last week were on the move -- up 3%, down 16%, and flat -- averaging out to a 3.3% decrease.

The S&P 500 rose 0.8% for the week, a relative victory for me and my bearish calls. I have come out ahead in 12 of the past 16 weeks. Let's see if I can keep going. This week I see Fastenal (FAST -1.05%), Renren (RENN -0.28%), and Robinhood Markets (HOOD -3.20%) as vulnerable investments in the near term. Here's why I think these are three stocks to avoid this week.

A seated person looking down as question marks are on the wall to the side.

Image source: Getty Images.

Fastenal

We're heading into earnings season, and one of the more problematic reports this week could be from Fastenal. The maker of products for the construction and industrial markets -- from fasteners to janitorial supplies -- will discuss its latest quarter on Tuesday morning.

Wells Fargo analyst Michael McGinn downgraded the stock late last week, taking his rating from a neutral "equal weight" to a bearish "underweight." It's not a good sign when a Wall Street pro decides to downgrade a stock just two trading days before it reports fresh financials. He's also lowering his price target from $50 to $45, both price points below where the stock is trading at right now.

McGinn sees a lot things potentially working against Fastenal. Risks include wage inflation for warehouse employees, freight rate increases, and a business that relies heavily on China-sourced fasteners. 

It's also worth noting that while Fastenal has posted better-than-expected earnings in each of the past four quarters, it's been by a mere penny per share each time. I'm not suggesting Fastenal is orchestrating these bottom-line beats. My problem is that these beats have been by no better than 3% over the past year. 

Renren

The top gainer last week among Nasdaq-listed companies was Renren, soaring 75%. China's Renren has evolved over the years. It unloaded its online gaming arm in 2016 and its original social media network in 2018. The transformation finds it now operating a used auto platform and a couple of SaaS business in the U.S. and China. 

We're far removed from Renren's glory days. Its revenue last year clocked in 73% lower than it did in 2018. However, the big rally finds Renren trading at more than 30 times trailing revenue. Last week was a strong one for rebounding Chinese growth stocks, but Renren's upticks seem overdone. 

Robinhood Markets

I own shares of Robinhood Markets, but that didn't stop me from singling it out last week. The online trading platform was the one trading flat last week, down a mere 0.3% in a generally upbeat week for stocks. It's back on my list of stocks to avoid.

Robinhood continues to lean on payment for order flow to help bankroll its "free" commissions, and that practice is coming under regulatory fire these days. There is headline risk here, even as Robinhood grows its share of the crypto and options trading markets.

If you're looking for safe stocks, you aren't likely to find them in Fastenal, Renren, and Robinhood Markets this week.

Rick Munarriz owns shares of Robinhood Markets, Inc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Fastenal Stock Quote
Fastenal
FAST
$50.89 (-1.05%) $0.54
Renren Stock Quote
Renren
RENN
$32.39 (-0.28%) $0.09
Robinhood Markets Stock Quote
Robinhood Markets
HOOD
$9.67 (-3.20%) $0.32

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.