Wall Street in general took a small step back for the sixth trading week of 2023. My "three stocks to avoid," which I thought were going to lose to the market in the past week -- Zoetis (ZTS 2.63%), Tesla Motors (TSLA 0.11%), and Applied Materials (AMAT 0.96%) -- fared far better by climbing 9%, 6%, and 1%, respectively, averaging out to an 5.3% increase.
The S&P 500 moved 0.3% lower for the week. I was wrong. I have been correct in 45 of the past 70 weeks, or 64% of the time.
Let's turn our attention to the week ahead. I see Carvana (CVNA 3.79%), Tesla Motors, and Sturm, Ruger (RGR +0.08%) as stocks you might want to consider steering clear of this week. Let's go over my near-term concerns with all three investments.
Image source: Getty Images.
NYSE: CVNA
Key Data Points
1. Carvana
Sometimes it's the company selling cars -- instead of the autos themselves -- that are lemons. Carvana is in trouble. The stock chart may suggest otherwise. The shares may have more than tripled since bottoming out two months ago, but Carvana's fundamentals still haven't shifted out of reverse.
You probably know Carvana, the used car retailer with flashy ads and even flashier glass-enclosed vending machines that spit out secondhand rides. It was a growth stock for the ages at one point, pulling off 23 straight quarters of triple-digit revenue growth until the pandemic sucker punched the market in early 2020.
Carvana proved mortal when the auto market stalled in 2020, and things have been particularly painful for Carvana's finances. It expanded quickly during the pre-pandemic boom, accumulating a good chunk of debt in the process. It has more than $8 billion in total debt on its balance sheet.
Creditors are getting nervous. There are ominous trends beyond Carvana's control working against the business. Demand and supply for used cars in the U.S. has been shrinking since last year. Rising rates may upend the auto financing market.
Toss in a potential recession into the mix, and Carvana has more problems than horsepower. It reports fourth-quarter results after Thursday's market close -- and it's not likely to be pretty.
NASDAQ: TSLA
Key Data Points
2. Tesla Motors
One of this year's biggest winners is Tesla Motors. Shares of the country's leading maker of electric cars have more than doubled since bottoming out in early January. Bad news just seems to be another wall of worry for the high-tech vehicles to scale.
The stock moved higher last week despite a massive recall for its Full-Self Driving (FSD) platform. The good thing for Tesla is that its "recalls" are largely over-the-air updates. The bad news is that regulators are starting to be more concerned about the dangers of autonomous driving at this early state of the potential game-changing niche for cars.
You also had Tesla agree to make many of its Supercharger stations available to other vehicles. The market has seen this coming, as the Department of Transportation has been hinting that universal charging at kiosks will be a requirement for a company to be eligible for a chunk of the $7.5 billion in funding for electrifying infrastructure.
This may seem like good news for Tesla, but owners can't be happy. They've already seen the value of the cars drop in price after sharp price cuts by Tesla, and now they may face longer lines at Supercharger stations that were once exclusive to them. Tesla's long-term potential is huge, but with the stock doubling in the past six weeks, it could be time to shift into reverse.
NYSE: RGR
Key Data Points
3. Sturm, Ruger
Finally, I have Sturm, Ruger in my crosshairs. Gun sales spiked in 2020 at the onset of the pandemic. Folks hunkering down at home started arming themselves to defend against potential crime outbreaks. A contested election later in the year had people even more jittery.
The gloomy scenarios didn't play out. Firearm manufacturers saw their sales dip in 2021, and the retreat continues.
Sturm, Ruger reports its fourth-quarter results after Wednesday's market results. It could be another misfire. Last year kicked off with a 10% year-over-year decline in revenue. Things only got worse, with 30% and 22% slides in subsequent quarters.
Analysts see a 20% decline for the fourth quarter that it will discuss later this week. Those same Wall Street pros see an 8% top-line hit for all of 2023, shaping up to be Sturm, Ruger's third consecutive annual decline after a record 2020.
Things aren't any better on the bottom line, a big deal for Sturm, Ruger, given its chunky dividend yield. The maker of pistols, revolvers, and rifles has fallen short of analyst profit targets in each of the past three quarters. They see Sturm, Ruger earning less than half as much as it did in the prior year's fourth quarter.
Analysts obviously expect profitability to continue sinking in 2023. Momentum is not on Sturm, Ruger's side this earnings season.
The stock market is always on the move. If you're looking for safe stocks, you aren't likely to find them in Carvana, Tesla Motors, and Sturm, Ruger this week.
