I ended 2021 on a hot streak with my weekly column where I single out stocks to avoid in the week ahead. My three stocks to avoid last week were on the move -- as AMC Entertainment (AMC), GameStop (GME 6.20%) and Robinhood Markets (HOOD 1.28%) were down 2%, 5%, and 6%, respectively -- averaging out to a 4.3% decline.
The S&P 500 rose 0.9% for the week, so I was the relative winner with my bearish calls for the eleventh week in a row. This week, I see Constellation Brands (STZ 1.38%), GameStop (GME 6.20%), and SeaWorld Entertainment (SEAS 1.10%) as stocks that you may want to consider steering clear from. Let's go over my reasons for the near-term pessimism.
There aren't a lot of companies reporting earnings this week, but one that could prove problematic is Constellation Brands. The leading distributor of beer, wine, and heartier spirits offers up quarterly results on Thursday morning. The company behind Corona beers, Mondavi wines, Svedka vodka, and High West Whiskey hit a new all-time high on Friday.
You may think business is booming, given its buoyant shares that have soared 20% over the past four months, but you would be wrong. Revenue is expected to inch a mere 1% higher this fiscal year, and earnings have fallen short of analyst estimates in back-to-back quarters.
With a dominant share of the high-end beer market, I'm not bearish on Constellation's long-term prospects. The rub this week is that the stock is at a new peak on uninspiring top-line growth and bad momentum with its recent bottom-line results. It's going to need a monster report on Thursday if it wants Wall Street to raise a toast to Constellation Brands.
Picking GameStop for the third week in a row as a stock to avoid may seem to be a case of pushing my luck, but that's the kind of dedication diehard gamers should appreciate. GameStop is doing some things right, and later this month it will finish a fiscal year with positive top-line growth for the first time in four years.
The counter to that argument is that after back-to-back years of sales declines of more than 20% an uptick in the teens won't even get GameStop back to where it was two years ago. GameStop has nearly $6 billion in trailing revenue, but that's well shy of its peak of $9.5 billion nine years earlier.
The bullish case for the original meme stock made sense a year ago when short interest was greater than 100%. Today it rests at a yawn-worthy 11%. It's overvalued by most metrics, and it has posted larger-than-expected deficits in back-to-back quarters. Meme stock investors will probably move to something more shiny and new in 2022.
Last week I went for stocks with recent sharp declines, figuring that they would be under selling pressure as investors lock in losses for their 2021 taxes. It's January, and a lot of last year's dogs could bounce back this month. I screened for big winners, and out of the nearly 160 stocks with market caps of at least $1 billion that more than doubled in 2021, I tried to fish for one that I think could be susceptible in the near term. A stock I own nibbled on my hook.
I'm a SeaWorld Entertainment investor, and a fan of how they've been able to blend animal-themed exhibits with thrill rides and family attractions. However, I don't think SeaWorld should've doubled last year. The world's largest theme park operator's stock actually declined in 2021, and now we have COVID-19 cases surging in all of the states where SeaWorld has a presence. SeaWorld likely had a strong holiday quarter, so I can see it moving higher in February, when it reports financial results. Between now and then it could be vulnerable to more negative pandemic updates.
If you're looking for safe stocks, you aren't likely to find them in Constellation Brands, GameStop, and SeaWorld Entertainment this week.