I've had a pretty good run the past two months with calling out stocks that are susceptible to sliding in the week ahead. My three stocks to avoid last week were on the move -- as GameStop, Stitch Fix, and Marathon Digital Holdings were all down, 8%, 18%, and 3%, respectively -- averaging out to a 9.7% decline.
The S&P 500 soared 3.8% for the week, so I was the relative winner with my bearish calls for the eighth week in a row. This week, I see Digital World Acquisition (DWAC 10.96%), Sweetgreen (SG 0.14%), and Steelcase (SCS 0.28%) as stocks that you may want to consider steering clear from. Let's go over my reasons for the near-term pessimism.
Digital World Acquisition
One of last week's biggest winners was Digital World Acquisition, the special purpose acquisition company (SPAC) that took off in October after announcing a combination with Trump Media & Technology Group's social-media platform, with plans to launch Truth Social. The stock soared 25% last week after Calif. Rep. Devin Nunes announced that he would be retiring from Congress to serve as CEO of the political media company.
As I've mentioned in the past, singling out Digital World Acquisition as a stock to avoid isn't a political statement. There's clearly room for a content company that appeals to a decent-sized chunk of the country. The rub here is that the SPAC also announced early last week that it was being probed by regulators and the SEC. With SPAC fatigue genuinely weighing on the market -- and the volatility here pretty clear over the past two months -- I can definitely see it cooling off after a hot week.
I'm a fan of Sweetgreen as a premium salad-tossing concept. I thought the stock's initial pop after hitting the market last month was overdone. It corrected sharply with the general market, only to move higher again with a 29% surge last week.
Sweetgreen is a strong brand in the high-end salad game, and folks aren't flinching at paying an average of $15 for one of its fresh leafy creations. It's not the valuation of the salad itself that concerns me. Sweetgreen commands a $3.4 billion market heading into this new trading week, a rich price tag for a chain of 140 restaurants that has yet to turn a profit.
Expansion will take Sweetgreen places. It expects to open at least 30 stateside locations this year, doubling its eatery count in the next three to five years. Revenue rose 51% through the first nine months of this year, but that follows a pandemic-saddled 2020 when the top line took a nearly 20% hit. As great as Sweetgreen is as a concept, the imitators are everywhere. A money-losing restaurant concept doesn't deserve to be trading at a double-digit revenue multiple.
I've been burned calling out office-furniture specialists in the past. It seems like a problematic niche as hybrid workspaces and the boom in remote employees make it less necessary to invest in snazzy new corporate furnishings. I'm trying to see if I can finally get it right.
Steelcase reports financial results on Thursday. It posted mixed quarterly results. Revenue was strong -- on depressed year-ago results -- but it also fell short for missed Wall Street's profit target last time out. Analysts would go on to pare back their near-term bottom-line projections.
The potential downside here isn't as juicy as Digital World Acquisition and Sweetgreen. There's a hefty 4.9% yield here, and a bad report is going to have some support -- with the yield popping above 5% -- on even a small decline. I still think the trend is problematic for office-furniture specialists.
If you're looking for safe stocks, you aren't likely to find them in Digital World Acquisition, Sweetgreen, and Steelcase this week.