My "three stocks to avoid" column sometimes proved timely, as all three investments I figured would be in for a rough few trading days took double-digit percentage hits. The three names I figured were going to move lower for the week -- Beyond Meat, Redbox, and New Relic -- finished down 13%, 56%, and 19%, respectively, averaging out to a 29.3% decline.
The S&P 500 declined 2.4% for the week, so the stocks I figured would move even lower actually did fare worse. I was right, and I have now been right in 21 of the past 30 weeks.
This week, I see Coca-Cola (KO 0.30%), Blue Apron (APRN 134.52%), and Tencent Music Entertainment (TME 2.41%) as stocks you may want to consider steering clear of. Let's go over my near-term concerns with all three investments.
There's been a flight to quality in recent months, and that explains why Coca-Cola hit an all-time high three weeks ago, when the general market was reeling. The iconic brand is a household name and a popular addiction, but what do you do when its relative valuation is fizzier than one of its freshly opened signature soft drinks?
Tech bellwethers have seen their stocks fall to the point where they're trading at earnings multiples in the teens or low 20s. Meanwhile you have the slow-growing Coca-Cola fetching 28 times trailing earnings. The outlook doesn't get materially better in the short run. Coca-Cola is trading at 27 times this year's projected profit and 25 times next year's multiple.
Coca-Cola is not a growth stock. Revenue has declined in seven of the past nine years. Soft drink consumption trends have been on a steady decline since peaking 22 years ago. Coca-Cola has hopped on to alternative beverages to ease the pain, but growth is still not impressive. If real growth stocks continue to bounce back the way they did late last week, it's fair to say that growth investors who found their way to Coca-Cola as a flight to safety will be booking a round trip back to the faster-growing names out there.
Some of the hardest-hit stocks started to bounce back last week. Blue Apron rose 29% from last Monday's low by the time it closed on Friday. Is a recovery in the works for the provider of mail-ordered meal kits? Well, it's always good to remain skeptical.
Blue Apron initially soared two years ago as potential pandemic play. With folks spending more time at home, brushing up their culinary skills through meal kits seemed like a logical beneficiary of folks who were hunkering in place. After back-to-back years of huge double-digit percentage declines in revenue, Blue Apron's sales did bounce back in 2020 -- but it was a mere 1% gain. It did build on that in 2021, only that was just a 2% uptick.
The good news is that analysts see revenue growth accelerating at this point, targeting top-line growth in the teens this year and again in 2023. The bad news is that Wall Street's been too generous with its forecasts in the past. Blue Apron's quarterly deficits have exceeded analyst targets -- by a lot -- in each of its last three reports.
Blue Apron was early to this niche, but it has become a cutthroat market. Promotional activity to get noticed is costly, and churn is high as rival platforms offer discounted introductory deals. Analysts don't see the chef maker turning a profit until four years from now, and it may not have enough money to last that long without diluting its shareholders.
Tencent Music Entertainment
China's leader in streaming music isn't cranking up the volume these days. Despite a commanding share of China's digital music market as well as a strong foothold in higher-margin social karaoke, Tencent Music has been trading in the single digits since last summer.
Revenue growth has decelerated sharply in each of the past four years. Tencent Music Entertainment grew its top line 152% in 2017, and that was whittled down to 7% growth last year. It reports quarterly results after Monday's market close, and the prognosis isn't pretty. Analysts have been scaling back near-term profit targets. Tencent Music Entertainment has a lot to prove this week.
It's going to be a bumpy road for some of these investments. If you're looking for safe stocks, you aren't likely to find them in Coca-Cola, Blue Apron, or Tencent Music Entertainment this week.