Wall Street in general took a step back for the seventh trading week of 2023. My "three stocks to avoid," which I thought were going to lose to the market in the past week -- Carvana, Tesla Motors, and Sturm, Ruger -- fell 30%, slipped 5%, and rose 3%, respectively, averaging out to a 10.7% decrease.
The S&P 500 moved 2.7% lower for the week. I was correct. I have been right in 46 of the past 71 weeks, or 65% of the time.
Let's turn our attention to the week ahead. I see Cracker Barrel Old Country Store (CBRL 1.18%), LivePerson (LPSN 3.25%), and Frontdoor (FTDR 1.20%) as stocks you might want to consider steering clear of this week. Let's go over my near-term concerns with all three investments.
NASDAQ: CBRL
Key Data Points
1. Cracker Barrel Old Country Store
It's an iconic road-trip staple. Many of the more than 660 Cracker Barrel locations are situated off roadways with a lot of traveler activity. The chain specializes in Southern comfort food, paired with rustic general stores. The rocking chairs and checkerboards on display on the front porch are there for waiting patrons as well as for purchase.
Cracker Barrel suffered during the early stages of the COVID-19 crisis. Revenue fell 18% for the fiscal year ending in July 2020, capped off by year-over-year top-line dives of 42% and 37% in the final two fiscal quarters. Business has recovered to pre-pandemic levels, but its three-year annualized growth rate is an unimpressive 2.5%. Making matters worse, most of the recent sales gains are the handiwork of rising menu prices.
Image source: Getty Images.
Wall Street sees ho-hum gains in the near term. Analysts are targeting mid-single-digit growth through the next two fiscal years. Investors will get another glimpse into Cracker Barrel's sleepy financials on Tuesday morning, when it serves up fiscal second-quarter results. It's not likely to be very inspiring.
The market's bracing for a 6% revenue increase on a 20% decline in earnings per share. The bottom line could be worse. Cracker Barrel has missed Wall Street profit estimates in each of the past three reports. Momentum is a challenge for a restaurant chain struggling to keep up with its rising operating costs.
NASDAQ: LPSN
Key Data Points
2. LivePerson
I'm bullish on the long-term potential of LivePerson. The cloud-based chat support specialist is good at what it does. It combines artificial intelligence and bots with human agents to provide platform support that helps tackle a website's customer service issues. It can be proactive, helping an e-commerce company lower incidents of abandoned shopping carts.
The rub with LivePerson as it heads into its latest quarterly results this week is that business is slowing. Guidance back in early November was calling for just 1% to 4% revenue growth for the fourth quarter. Even if lands on the high end of that range, it will be the weakest year-over-year quarterly growth since 2017. Analysts think the top line will deliver single-digit growth next year. The profit picture is also not pretty at the moment, and LivePerson has posted larger-than-expected deficits for three consecutive quarters.
LivePerson's move to incorporate the trendy ChatGPT into its platform made headlines earlier this month. Investors may want to make sure that the head-turning move doesn't just wind up as another abandoned shopping cart.
NASDAQ: FTDR
Key Data Points
3. Frontdoor
Frontdoor is the leading provider of home warranty plans. If the name doesn't ring a bell, maybe one of its subsidiaries that essentially do the same thing may sound familiar: American Home Shield, HSA, Landmark, and OneGuard, among others. Its services are similar to an insurance policy or a health plan for your home's major appliances. If anything breaks down, Frontdoor will cover the repair costs.
There's a sound argument to be made in favor of Frontdoor in this climate. With mortgage rates on the rise, folks are reluctant to sell their homes that are locked into lower borrowing costs. A home warranty therefore makes sense on aging appliances. The downside is that homeowners also buy warranty plans on new property purchases, and that market has cooled substantially in recent months.
Frontdoor is expected to report financial results on Wednesday afternoon. The market isn't expecting much. Analysts see a 2% year-over-year revenue decline and a quarterly loss wiping out a modest prior-year profit. It has fallen short of earnings forecasts in three of the past four quarters. It had a solid showing last time out, but a healthy uptick in warranty renewals can slow if homeowners prioritize other expenditures in a softening economy.
The stock market is always on the move. If you're looking for safe stocks, you aren't likely to find them in Cracker Barrel, Tesla Motors, and Frontdoor this week.
