Wall Street ended the first quarter on a bullish note. I thought my "three stocks to avoid" -- Walgreens Boots Alliance, H.B. Fuller, and Tesla Motors -- were going to lose to the market in the past week. They rose 6%, 2%, and 9%, respectively. The final result was an average climb of 5.7% for the week.
The S&P 500 soared 3.5% higher, its third big week -- but not enough to catch the three stocks I was betting against. I was wrong, but I have still been right 49 of the past 76 weeks, or 64% of the time.
Let's turn our attention to the week ahead. I see Alibaba (BABA 3.43%), WD-40 (WDFC 4.82%), and Frontier Communications (FYBR +0.00%) as stocks you might want to consider steering clear of this week. Let's go over my near-term concerns with all three investments.
NYSE: BABA
Key Data Points
1. Alibaba
Chinese stocks were big winners last week. Alibaba was the most valuable company by market cap to post double-digit gains last week, climbing 18% after the company announced a restructuring that will divide the blue chip into six distinct business units.
The stock market has delivered three straight weeks of outsize gains. It's due for a breather. I figure the biggest winners of last week will be early casualties of a step back. Tag, you're it, Alibaba.
Image source: Getty Images.
The sum of Alibaba's parts should theoretically be worth more than the whole, but if things were that easy, every company would be splitting off into smaller pieces. The reality is that Alibaba still has to deal with China's anti-business regulatory tendencies. Decelerating economic growth in the world's most populous nation and competitive pressures are also weighing on Alibaba's near-term prospects.
In terms of valuation, Alibaba may seem attractively priced on a forward earnings basis. The rub is that analysts see both revenue and earnings per share climbing a mere 7% in 2023. After last week's big move higher, it could be vulnerable if market momentum turns.
NASDAQ: WDFC
Key Data Points
2. WD-40
It's a quiet week on the earnings front, but one of the handful of companies reporting fresh financials this week is WD-40. You know the brand. You know the namesake lubricant with a seemingly infinite list of applications. WD-40 also puts out several more maintenance, home care, and cleaning products.
Wall Street isn't holding out for much when WD-40 reports on Thursday afternoon. Analysts are modeling a 28% decline in earnings per share on a 3% dip in revenue. Slumping international sales have been a drag on performance, and margins have been problematic. To top it off, WD-40 has fallen short of market profit targets in each of its last three reports.
Then we get to the timing of the earnings release. WD-40 is hosting its earnings call after the market close on Thursday. Why is that a problem? The market is closed for trading on Good Friday. Why would WD-40 schedule its quarterly conference call when investors can't trade on the news for another three days? I realize this means a bad report won't be factored into the stock action during this abridged trading week, but April in general doesn't seem very inspiring for WD-40 shareholders.
NASDAQ: FYBR
Key Data Points
3. Frontier Communications
Telcos have been laggards lately, and Frontier is heaving just to keep up with its peers. Frontier is in a bind. Its business isn't moving in the right direction. Revenue declined 7% in its latest quarter, down 10% for all of 2022. That's not a fluke. Frontier has posted negative top-line growth for five consecutive years.
Its ambitions are noble. Frontier has been investing to build out the fiber engine it needs to fuel its digital infrastructure business. The problem is that providing consumers with broadband connectivity and other telco services is a slow and cutthroat business.
Frontier's balance sheet isn't helping. The stock's $5.6 billion market cap is deceptive. Its enterprise value is approaching $13 billion, fueled by nearly $9.5 billion in debt. You don't want to be a leveraged company in a climate of rising rates. Its gargantuan debt load is currently at an average interest rate of 6.76%. That's reasonable, but it won't always stay that way. It priced $750 million of first lien secured notes last month at a stiff 8.625% rate. With stagnant revenue and meager profits expected to transition to losses in the next two years, Frontier should continue to be a laggard.
The stock market is always on the move. If you're looking for safe stocks, you aren't likely to find them in Alibaba, WD-40, and Frontier this week.
