Wall Street kicked off the second quarter by essentially marching in place. I thought my "three stocks to avoid" -- Alibaba, WD-40, and Frontier Communications -- were going to lose to the market in the past week. They rose 0.5% and 0.3% and dipped 3.2%, respectively. The final result was an average decline of 0.8% for the week.
The S&P 500 slipped 0.1% lower. I was correct, and I have been right 50 of the past 77 weeks, or 65% of the time.
Let's turn our attention to the week ahead. I see CarMax (KMX 0.52%), WD-40 (WDFC +0.20%), and Tesla Motors (TSLA +0.69%) 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: KMX
Key Data Points
1. CarMax
Selling cars isn't easy these days, and it's even more difficult if you're trying to move secondhand models. CarMax is the leading auto retailer specializing in used cars. It was a muscle car a year ago, when automakers were experiencing supply chain constraints. New cars were scarce in showrooms, and drivers were paying premiums on what was available.
Showrooms are now largely well stocked with new cars, and that's driving consumer interest and prices lower. CarMax revenue has decelerated sharply for five quarters, going from a 62% year-over-year increase to a 22% decline in its most recent report. Investors will get a fresh read on CarMax when it reports fresh financials on Tuesday morning.
Image source: Getty Images.
The market isn't holding out for much. Analysts see a 76% plunge in earnings on a 21% top-line slide. It's not an encouraging sign to see that CarMax has fallen woefully short in three of the past four reports. The last two quarters have been brutal, as the auto retailer has missed Wall Street's profit target by 43% and then 66%.
With consumers steering clear of big-ticket purchases in this climate of rising rates and looming recessionary concerns, it's hard to hope for a strong report out of CaMax this week. Last year's muscle car seems more like a lemon now.
NASDAQ: WDFC
Key Data Points
2. WD-40
I picked WD-40 last week for a few different reasons. The company behind the well-known lubricant has been historically unimpressive. It has delivered single-digit or negative growth in 18 of the past 20 years and all but one of the past dozen fiscal years. WD-40 has also been uninspiring on the bottom line, falling short of analyst expectations in three of the four previous quarters.
I also wasn't pleased with the timing of last week's quarterly report, coming on Thursday afternoon with the market closed for trading on Friday. Why report on the eve of an extended holiday weekend?
We finally got the fresh financials at the end of last week's four trading days, and it wasn't pretty. Revenue growth was flat, with a 14% decline in earnings per share for WD-40's fiscal second quarter. The performance was actually ahead of market expectations, but guidance was a dagger. WD-40 lowered its revenue, earnings, and the midpoint of its gross margin guidance for all of fiscal 2023.
NASDAQ: TSLA
Key Data Points
3. Tesla Motors
Like the prior week's WD-40 call, this is probably going to be a two-week stay for Tesla Motors. It reports its first-quarter results on April 19. We already know that the electric car bellwether delivered 422,875 vehicles during the first quarter. The 36% year-over-year growth was a bit light, off from the 42% gain for all of 2023 that Tesla's earlier unit outlook implies.
Beyond the sheer number of cars, Tesla keeps cutting prices. Reuters is reporting that Tesla's website lowered prices on all of its models. Tesla's best-selling Model 3 sedan and Model Y crossover were marked down by $1,000 and $2,000, respectively. Its high-end Model S and Model X cars had a $5,000 markdown.
Logic would dictate that Tesla's timing of the price cuts on Thursday of an abridged trading week was an act of following WD-40's lead. However, Tesla's been cutting prices all year long. The stock is up 50% in 2023.
The problem is that price cuts add up over time. Tesla's base Model Y is 20% cheaper than it was when the year began. Are analysts and investors really going to bid up the stock heading into a telltale quarterly report in nine days? There's always the possibility that Tesla pulls a margin-preserving rabbit out of its hat and earns its upticks, but Elon Musk has a lot to prove this month.
The stock market is always on the move. If you're looking for safe stocks, you aren't likely to find them in CarMax, WD-40, and Tesla Motors this week.
