Wall Street bounced back during its holiday-abridged trading last week. I thought my three stocks to avoid -- Carvana, Conn's, and Dollar General -- were going to lose to the market in the past week. They soared 34%, rose 6%, and plummeted 19%, respectively. The final result was an average gain of 7% for the week.
The S&P 500 climbed 1.8% higher, so I was wrong. I've still been right in 55 of the past 85 weeks, or 65% of the time.
Let's turn our attention to the week ahead. I see Altria (MO +0.34%), Carvana (CVNA +2.57%), and Hooker Furniture (HOFT +2.35%) 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: MO
Key Data Points
1. Altria
The long-term outlook for Altria isn't encouraging. The tobacco giant has spent its life doubling down on addictive vices, and it's not just its customers getting smoked. Altria always seems to be on the losing side of settlements when its patrons suffer. Just last month, Altria reached a settlement in which it will pay $235 million to resolve at least 6,000 Juul-related cases. It will record the hit in the current quarter, and there are several more vaping cases that are still taking place.
What's the appeal to Altria? Income investors will be quick to say that the stock's 8.3% yield is the real addiction here, but are those payouts sustainable when growth is hard to come by and the perpetual legal fisticuffs make "one-time" settlement charges a recurring operating hazard?
Image source: Getty Images.
Altria keeps tightening the screws on its vice vise. Last week it closed on its acquisition of NJOY, adding the e-cigarettes pioneer to its portfolio heavy in tobacco, wines, vaping, and cannabis products. It's been a dry spell despite the shopping spree that should be padding its organic growth. Annual revenue growth has never topped 6% in the past 20 years since its Altria rebranding.
It's not just the top line that's uninspiring. Altria would routinely trounce Wall Street profit targets, but it's been more than a year since it beat earnings forecasts by more than 1%. The stock has also been flat this year, as the gap between Altria's dividend and what the top money market funds are yielding has narrowed. Altria's pedestrian returns over the past five years are less than a quarter of the overall market's gain in that time. Investors are kicking the habit of owning Altria as an all-weather stock.
NYSE: CVNA
Key Data Points
2. Carvana
Carvana tripped up my column last week. Shares of the over-the-top seller of secondhand cars soared 34% last week. The good news is that S&P Global bumped its credit ratings higher on several classes of Carvana loan securitizations. The bad news is that future car sales of used vehicles may be hard to come by as lenders tighten their financing standards in an iffy economy.
It's surprising to see Carvana as one of this year's hottest names. The shares have more than tripled, up 231% so far in 2023. Fears that the heavily leveraged Carvana would have to file for bankruptcy protection have eased, but it doesn't mean that business will be getting better in the near term. The same auto retailer that routinely dazzled growth investors with triple-digit growth has now posted three consecutive quarters of widening declines in revenue.
The hot week for Carvana ended on a cold note. It ended plans to exchange outstanding existing notes for high-yielding notes due 2028 because of a lack of demand. Carvana was one of the few stocks to trade lower during Friday's otherwise buoyant trading session. Whether momentum is starting to turn or Carvana's just ready to give back some of this year's spectacular gains it's easy to see Carvana prove mortal over the next few days.
NASDAQ: HOFT
Key Data Points
3. Hooker Furniture
One of the problematic earnings reports this week could come from Hooker Furniture. It's been doing well with its domestic upholstery business lately, but its larger segment specializing in imported casegoods has more than eaten away at growth elsewhere.
This isn't a smart time to be loading up on furniture stocks. Consumers are getting more stingy about their spending outside of the essentials, and the real estate market has cooled. The rub is that Hooker Furniture was struggling even when furniture makers were riding high earlier in the COVID-19 crisis. Hooker Furniture has posted declining sales in three of the past four quarters, and Thursday's report is expected to be more of the same.
Analysts see a 17% decline in revenue for the fiscal first quarter with net income being shaved by more than half. A major draw to Hooker Furniture is its 5.5% yield, but that dividend isn't safe if profitability continues to go the wrong way.
The stock market is always on the move. If you're looking for safe stocks, you aren't likely to find them in Carvana, and Hooker Furniture this week.
