Wall Street moved slightly lower during the third trading week of 2023. My "three stocks to avoid," which I thought were going to lose to the market in the past week -- Bed Bath & Beyond (BBBY), Alcoa (AA -0.39%), and ExxonMobil (XOM 0.23%) -- plunged 8%, dipped 7%, and closed flat, respectively, averaging out to a 5% decline.
The S&P 500 moved in the other direction, increasing 0.7% for the holiday-abridged week. It was close, but I was right. I have been correct in 43 of the past 66 weeks, or 65% of the time.
Let's turn our attention to the week ahead. I see Bed Bath & Beyond, D.R. Horton (DHI -1.31%), and Tesla Motors (TSLA 4.96%) as stocks you might want to consider steering clear of this week. Let's go over my near-term concerns with all three investments.
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1. Bed Bath & Beyond
Singling out Bed Bath & Beyond for a second week is a dangerous game. I'm fairly confident where this story will end, but there will be short squeezes and other spikes along the way. The housewares retailer is in trouble. Sales growth is negative for the chain's fifth consecutive fiscal year, and losses are widening.
Remember the early days of the pandemic, when folks invested heavily in their homes to make themselves more comfortable during lockdown? Bed Bath & Beyond sales plummeted 17% that fiscal year, the first of what will be three straight years of double-digit declines on the top line. Shoppers had abandoned the chain before the pandemic, too, even as the economy and real estate market were heading in the right direction.
Bed Bath & Beyond is in bad shape. Its heavy debt load gives it not much to play with now. The investment will be volatile, and while that's par for the course for meme stocks, this is one where the best-case bullish scenario is difficult to spell out.
2. D.R. Horton
Homebuilders have had a good run, and valuations look tempting on a trailing basis. It's also earnings season, and D.R. Horton is reporting fresh financials on Tuesday morning. I'm still putting the Texas-based developer on this list.
D.R. Horton shares enter this week just 3% below its 52-week high, but you have to wonder why that's the case. The residential builder fell short of Wall Street earnings expectations when it posted fourth-quarter results for fiscal 2022 three months ago, making it a challenging hold heading into this week's update. Analysts have also been slashing their profit targets.
Wall Street pros were eyeing net income of $13.38 a share for the new fiscal year and $14.14 a share in fiscal 2024 just three months ago. The consensus estimate is now $9.61 and $9.74, respectively. The stock may seem cheap at just less than 10 times forward earnings, but you have to wonder if the projections will keep tumbling after 28% to 31% in downward revisions over just a couple of months.
Bulls will argue that we have a shortage of homes in this country, and they're not wrong. But new digs are likely to be priced lower on contracting margins.
3. Tesla Motors
It's not just D.R. Horton checking in with what could be problematic quarterly results this week. Tesla Motors will step up with its fourth-quarter results on Wednesday afternoon.
Tesla has done a lot of things right over the years, but these next two financial updates aren't likely to impress. Tesla had to discount December deliveries -- twice -- and it still fell short of market expectations for deliveries. The first quarter is likely to squeeze margins even harder with huge price cuts on its Model Y cars.
The stock is up 23% over the past dozen days despite weak demand prompting aggressive price cuts in the U.S. and China. Investors may be looking past the short-term hiccups, but they might rethink that stance if this week's earnings call is cloudy and unsettling.
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 Bed Bath & Beyond, D.R. Horton, and Tesla Motors this week.
