It was another wild week for the market, and the same can be said of my three stocks to avoid. The three names I figured were cruising for a bruising last week -- Vipshop Holdings, Exact Sciences, and Booking Holdings -- were down 11%, up 6%, and down 13%, respectively, averaging out to a 6% decline.
It was a week of ups and downs on Wall Street. The S&P 500 rose 0.8% for the week, so I won easily again this week. The S&P 500 has now outperformed my bearish picks -- meaning that I beat the market, as these are stocks I suggest investors avoid -- in 17 of the past 19 weeks. This week, I see Splunk (SPLK), Big Lots (BIG 2.59%), and Value Line (VALU -5.57%) as stocks that you may want to consider steering clear from. Let's go over my near-term concerns.
Image source: Getty Images.
Splunk
With great buzzwords come great growth opportunities, and Splunk had no shortage of both when it hit the market nearly a decade ago. Riding the "big data" trend, Splunk offered companies a way to tap into information that was largely untapped before. The data platform eventually offered observability, security, and other enterprise-enhancing applications.
Growth was stunning when Splunk hit the market in the springtime of 2012. Revenue had soared 83% the fiscal year before its debut. It's a different world for Splunk these days. Revenue has decelerated for 10 consecutive years, culminating in a 6% decline on the top line for the fiscal year that ended in January of last year.
The streak of decelerating revenue growth should end in the fiscal year that ended last month, and Splunk will make it official when it reports its fiscal-fourth quarter results on Wednesday afternoon. The report won't be pretty. Analysts see a mere 4% year-over-year revenue increase for the quarter, but that follows a 6% decline last time out. Analysts aren't buying into the turnaround. Three months ago they thought Splunk would come through with a small profit, but now they're forecasting a larger quarterly loss. There was buyout speculation two weeks ago, and another rough quarter this week could find Splunk investors chasing an exit strategy. That's a tricky scenario to bet against, but the stock is more likely to contract from a weak quarter.
Big Lots
Another potentially problematic earnings report this week could come from Big Lots. One would think that Big Lots is an all-weather performance, stocking its shelves with clearance, closeout, and overstocked items at steep discounts. Who doesn't love a good deal? However, Big Lots has proved mortal lately.
Analysts see net sales declining 1% for the holiday-potent fiscal quarter. Just as we see with Splunk, we're also seeing Wall Street pros playing limbo with Big Lots' profit target.
- 90 days ago: $2.39 a share in earnings.
- 60 days ago: $2.16 a share.
- 30 days ago: $1.93 a share.
- 7 days ago: $1.91 a share.
Big Lots is cheap, trading for less than 6 times trailing earnings. It's also paying out a healthy dividend of 3.4%. It's just running into some growing pains. Analysts see revenue declining slightly for the fiscal year that ended in January, with earnings taking an even bigger hit. Expectations are for earnings to keep declining in the new fiscal year. Cheap is relative, and another bad report come Thursday morning can deal Big Lots another blow.
Value Line
There aren't a lot of stocks that hit new highs last week, and one that didn't look like it belonged on the list was Value Line. Longtime investors probably know Value Line, a provider of independent research on stocks and other investments. Value Line keeps a low profile these days, and it shows in its historical growth.
Revenue has declined in half of the past 12 fiscal years, and even the up years aren't very exciting. Back out a year when Value Line's revenue rose 11%, and the next best showing in the past 20 years was a 4% gain. I'm not sure what Value Line itself would say about its own stock, but I get the feeling it doesn't live up to the growth expected in stocks hitting new highs in a market where investing research is evolving and perhaps left it behind in the last century.
If you're looking for safe stocks, you aren't likely to find them in Splunk, Big Lots, and Value Line this week.
