Wall Street bounced back last week. I thought my three stocks to avoid -- Carvana, Despegar.com, and Foot Locker -- were going to lose to the market in the past week. They rose 2%, soared 14%, and plummeted 23%, respectively. The final result was an average dip of 2.3% for the week.
The S&P 500 moved 1.6% higher, so I was right. I've been correct in 54 of the past 83 weeks, or 65% of the time.
Let's turn our attention to the week ahead. I see Best Buy (BBY 0.02%), Carvana (CVNA +2.57%), and Big Lots (BIG +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: BBY
Key Data Points
1. Best Buy
The consumer electronics retailer had a surprising renaissance a few years ago as many of its brick-and-mortar peers were buckling. Best Buy is struggling again. The superstore chain reports its fiscal first-quarter results on Thursday morning. They're not likely to be pretty.
Analysts see a 29% plunge in earnings per share on an 11% year-over-year dip in revenue for the three-month fiscal period that concluded at the end of April. The good news for bulls is that Best Buy has beaten Wall Street profit targets by more than 20% in its three previous quarters. The bad news: Momentum isn't working in its favor lately. Those same analysts have been whittling down their near-term earnings estimates in recent weeks.
Image source: Getty Images.
Best Buy undeniably deserves recognition for its ability to survive through the emergence of e-commerce players that can offer better prices as a result of lower overhead than chains with a physical storefront. But mass-market retailers that have already reported this earnings season have pointed to soft spending trends on anything that isn't food or home essentials, so it's hard to get excited about Best Buy heading into its financial update.
Sticking around isn't enough of a bullish investing thesis. Growth investors aren't flocking to Best Buy. You have to go all the way back to fiscal 2009 -- 14 years ago -- to find the last time that Best Buy posted annual double-digit percentage growth on the top line.
The stock's 5% yield might be compelling to income investors, but the payouts aren't sustainable if the bottom line keeps shrinking. The chances of Best Buy coming through with a strong quarterly performance don't seem very higher right now.
NYSE: CVNA
Key Data Points
2. Carvana
Carvana barely beat the market last week, but it was trading even higher before a 10% slide on Friday. The fast-growing used car retailer didn't have a lot of bullish company-specific news. Its only press release was about extending an offer for debt holders to exchange their notes, something it has done often lately.
The only analyst move was Morgan Stanley (MS +0.32%) reinstating coverage of Carvana with a neutral equal-weight rating. Its $12 price target was surpassed by Thursday before Friday's slide. Morgan Stanley sees a wide range of outcomes with the volatile stock. Its bull case valuation is a wealth-altering $60, but the bear case calls for the stock at $1. Given the $12 price target, it should tell you what the most likely scenario is for Carvana at this point.
The used car market has normalized now that auto manufacturers have licked their capacity constraints. The concern has to be what happens to the financing market as lenders tighten up their standards. With more than $9 billion in debt, and profitability at least four years away, the risks are high for a stock that has already soared 127% in 2023.
NYSE: BIG
Key Data Points
3. Big Lots
Best Buy isn't the only retailer checking in with what could be iffy results this week. Big Lots reports on Friday morning, and it's faring far worse than Best Buy.
Analysts see a widening quarterly deficit on a 13% slide in sales. The chain that loads up on closeouts and overstocked merchandise isn't expected to return to profitability until fiscal 2026, and that's a lifetime when you're reeling with a debt-heavy balance sheet. More than a third of its shares are sold short, opening the door for a bullish squeeze if it impresses the market this week -- but the chances of a win are slim at this point.
The stock market is always on the move. If you're looking for safe stocks, you aren't likely to find them in Best Buy, Carvana, and Big Lots this week.
