Wall Street's rally late last week wasn't enough to get it out of the red. I thought my "three stocks to avoid" -- Yeti, Robinhood Markets, and Electronic Arts -- were going to lose to the market in the past week. They slipped 6%, fell 1%, and closed unchanged, respectively. The final result was an average dip of 2.3% for the week.
The S&P 500 inched 0.3% lower. I was right. I've been correct in 53 of the past 82 weeks, or 65% of the time.
Let's turn our attention to the week ahead. I see Carvana (CVNA 3.95%), Despegar.com (DESP +0.00%), and Foot Locker (FL +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: CVNA
Key Data Points
1. Carvana
One of the more surprising stocks to more than double this year is Carvana. The used car retailer entered the year on the brink of bankruptcy, and by the time it hit peak pessimism in early February, more than half of its outstanding shares were sold short.
Carvana has made some necessary cost-cutting moves, and the market is still buzzing from the blowout quarter it posted earlier this month. It came through with better-than-expected financial results, scoring its highest gross profit per vehicle sold in its history.
Image source: Getty Images.
It's been a good year for Carvana shareholders. The stock is up 122% in 2023 and trading 51% higher in May alone. It doesn't mean that it's firing on all cylinders. The company still needs to refuel. With supply chain issues fading in the rearview mirror, the pricing leverage for secondhand rides is gone now that new cars are back in stock at local showrooms.
Analysts don't see Carvana turning a profit until 2027. It also has more than $9 billion in debt, a hefty tab after years of heady expansion in a thorny climate of rising borrowing costs.
The way regional banks have imploded lately, it's also hard to get excited about the state of the used-car financing industry. Carvana has steered well on this tricky road, but the shares are susceptible after recent moves higher.
NYSE: DESP
Key Data Points
2. Despegar.com
The travel industry was hit hard early in the pandemic, but Despegar.com's recovery could be upended with economic upheaval in its Latin American stronghold. The Argentina-based travel site will be serving up fresh financials on Thursday morning. The flight might prove to be a bit choppy.
Expectations are sky high. The market's bracing for a 39% increase in revenue. Analysts also see a small profit for the first quarter, ending a streak of 15 consecutive reports with adjusted losses. A breakthrough would be noteworthy, but Despegar has missed Wall Street's profit targets in each of the last four quarters. Why should it be different this time?
Things aren't all bad at Despegar. The Latin American travel portal has come through with five consecutive quarters of positive earnings before interest, taxes, depreciation, and amortization (EBITDA). Revenue has finally recovered to pre-pandemic levels. Analysts also see a profit for all of 2023, a nod to the scalability of its model and its healthy recent take rate.
In the sage investing advice of Irish songwriter Chris de Burgh, don't pay the ferryman until he gets you to the other side. Let's see if it can actually post an earnings beat -- and not another quarterly loss -- before calling this a successful turnaround.
The resignation of its chief financial officer earlier this year isn't necessarily problematic, but Despegar has a long track record of disappointing investors. The stock has plummeted nearly 80% since going public six years ago.
NYSE: FL
Key Data Points
3. Foot Locker
Foot Locker is a shopping mall staple, but let's blow the whistle on the chain where employees wear referee work shirts. It reports results for its fiscal first quarter on Friday morning, and the athletic footwear and apparel retailer isn't likely to impress the market.
Analysts see a 9% year-over-year decline in sales, and quarterly profitability cut in half. Foot Locker has beaten Wall Street bottom-line targets consistently over the past year, but the consensus estimates have been trending lower lately.
The stock is appealing to income investors given its current 4.1% yield, but is the payout sustainable? Analysts are bracing for a 30% decline in earnings for all of this year on a top-line downturn.
Foot Locker has a global chain of roughly 2,700 stores. It's great to be a large global player when the world's economy is on the upswing, but we're not there now. Consumers will likely scale back on purchases as pocketbooks tighten worldwide, and the retailer's debt-heavy balance sheet isn't a good look in this environment of rising interest rates.
The stock market is always on the move. If you're looking for safe stocks, you aren't likely to find them in Carvana, Despegar.com, and Foot Locker this week.
