I've been picking stocks to avoid every week, identifying names that I think could be challenged in the coming days. My three stocks to avoid last week were on the move -- down 17%, down 13%, and up 6% -- averaging out to an 8% decline.
The S&P 500 rose 2% for the week, so I was the relative winner with my bearish calls again. This week I see Tesla Motors (TSLA 2.52%), Digital World Acquisition (DWAC -0.25%), and SmileDirectClub (SDC -6.02%) as vulnerable investments in the near term. Here's why I think these are three stocks to avoid this week.
Sometimes it seems as if the richest man in the world is his own worst enemy. Elon Musk tossed his naysayers a bone over the weekend, tweeting a poll about his massive stake in Tesla Motors.
Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock.— Elon Musk (@elonmusk) November 6, 2021
Do you support this?
Asking randos to manage his portfolio is a dangerous game. It's even more hazardous to folks -- like me -- who actually own the stock. The poll isn't going well for him, unless his intention all along was to publicly justify selling a big chunk of his shares to diversify or cash out ahead of inevitable higher tax rates for him in 2022. Bears, Musk trolls, and the "eat the rich" masses are overwhelmingly nudging him in the direction of a stock sale.
If this was just a meaningless poll with little scientific relevance like every other online poll, the weekend social media post wouldn't matter. It would be just another conversation starter. However, he raised the stakes by immediately posting that he's going to let the public decide what he does with that 10% stake.
I will abide by the results of this poll, whichever way it goes— Elon Musk (@elonmusk) November 6, 2021
The poll ended on Sunday afternoon, with nearly 58% of the more than 3.5 million participants voting for Musk to sell 10% of his stock. We're talking about roughly $25 billion worth of Tesla stock getting dumped into the market, and probably added to the public float.
I'm a fan of Tesla. I made two investments in the company back in February, when I bought my first Tesla car and some shares in the automaker. Both have exceeded my expectations. My Model Y is worth more than when it was ready for me in mid-February. Price increases, a vehicle shortage, and the brand's strong resale value find me able to sell my car for more than I paid for it, if I wanted to. That's never happened to me, and I'm keeping the car.
The stock has fared even better, up 79% in just a handful of months. I'm going to hold on to both the car and the stock for now, but Musk has made it highly likely that the shares will have a challenging week.
Digital World Acquisition
My best bearish call the past two weeks was Digital World Acquisition, plunging 28% and then 17% in back-to-back weeks. The special purpose acquisition company (SPAC) initially soared after announcing a partnership for the launch of Trust Social, the social media platform that's the brainchild of Trump Media & Technology Group.
This has never been a political call. I've just seen gravity take down SPACs that soar on deal announcements, only to give back most of those gains once the actual financial terms are spelled out. There's always the risk that Digital World Acquisition starts trading as a meme stock, surging again in the near future. I think the fundamentals will eventually weigh on the SPAC's valuation.
Clear dental aligners aren't cheap, and SmileDirectClub stepped up with a commendable consumer-direct model that uses teledentistry to offer straighter teeth at a lower cost than the established competition. I've been bullish on SmileDirectClub in the past, but the trend is not its friend as it heads into Monday afternoon's quarterly report.
SmileDirectClub should've been a rock star through the COVID-19 crisis. If people wanted to straighten their teeth, what better time than the "shelter-in-place" phase of a global pandemic to get it done while passing time at home? Things didn't work out for SmileDirectClub, as revenue declined every quarter last year. Top-line growth turned positive through the first half of this year, but it's essentially where it was two years ago. It's not just revenue growth that has been disappointing, either, as SmileDirectClub has posted wider-than-expected deficits in its two previous quarters.
If you're looking for safe stocks, you aren't likely to find them in Tesla Motors, Digital World Acquisition, and SmileDirectClub this week.