It was another rough week for the market, and that was also the case for my three stocks to avoid. The three names I figured were going to move lower last week -- Fossil (FOSL -1.41%), Vera Bradley (VRA 3.16%), and Atlria (MO 0.73%) -- were down 34%, 2%, and 6%, respectively, averaging out to a 14% decline.
Bearish sentiment won this time. The S&P 500 declined 2.9% for the week, so my bearish calls that were down an average of 14% were correct. 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 18 of the past 21 weeks. This week, I see Anthem (ELV 0.98%), GameStop (GME 1.90%), and StoneCo (STNE 1.93%) as stocks that you may want to consider steering clear from. Let's go over my near-term concerns.
Image source: Getty Images.
Anthem
The few companies hitting all-time highs are largely from the oil and energy sectors. That makes sense, since prices are skyrocketing. But Anthem is an exception in this thin list of investments hitting new highs. It's a health insurance company, perhaps best known for its Blue Cross-Blue Shield plans.
Anthem is singing a new, well, anthem. It's looking to rebrand itself as Elevance Health as it sets its sights on more than just its core health insurance business. There's nothing inherently wrong with Anthem, but it probably shouldn't be hitting fresh highs when so many healthier stocks are correcting.
Anthem is reasonably priced at 16 times this year's projected earnings, and analysts see decent 12% growth this year. Two knocks against it are that those same Wall Street pros see Anthem growing at half that clip next year. They have also been whittling down their earnings forecast for the current quarter in recent weeks. The bearish thesis for Anthem isn't loud or obvious, but a health insurer angling for reinvention probably doesn't deserve new highs in this finicky market.
GameStop
It's easy to pick on meme stocks these days, but that's not what I'm about this week. I don't think the country's leading retailer dedicated to the videogame industry is doomed, and I even recently pointed out how it may have some long-term upside. Despite GameStop's challenges as physical distribution goes digital -- eliminating its highest-margin business of selling secondhand games -- it's done a good job of galvanizing its vocal retail investors as consumers.
My concern with GameStop this week is that it reports quarterly results after Thursday's market close. The retailer has been particularly vulnerable when it has its financial check-ins every three months. It has fallen the day after delivering fresh financials in 11 of the past 13 quarters, and even including the two times it rose, we're talking about an average decline of 13.8%. The trend is not its friend this week, making GameStop a potential sinker on Friday.
StoneCo
One of the hardest-hit industries these days is fintech, and few are feeling the pain StoneCo is. The Brazilian fintech player has plummeted 91% since peaking 13 months ago. StoneCo was supposed to report financial results last week, but the day before its earnings report it bumped the release to after this week's Thursday close. It's not a good look for a company that's done a fair amount of reeling over the past year and change. The stock will be tested again if it delays its quarterly report again.
StoneCo is still getting Brazilian merchants to sign up for its platform to boost payment volume, but it's been struggling nearly everywhere else. Profits have turned to losses for its credit business, and investors already concerned with the contracting market, valuations on bigger fintech stocks aren't going to warm up to an even smaller player with the extra layer of risk that comes with China's rough economy. StoneCo has fallen well short of analyst bottom-line projections in the past four quarters, falling more than 33% short in each of its past three reports. The shares have fallen so hard that even so-so news could spawn a relief rally, but momentum is clearly pulling StoneCo lower right now.
If you're looking for safe stocks, you aren't likely to find them in Anthem, GameStop, and StoneCo this week.
