Wall Street bounced back during its holiday-abridged trading last week. I thought my three stocks to avoid -- Altria, Carvana, and Hooker Furniture -- were going to lose to the market in the past week. They were flat, soared 22%, and rose 11%, respectively. The final result was an average gain of 11% for the week.
The S&P 500 inched 0.4% higher, so I was wrong. I was really wrong. I've still been right in 55 of the past 86 weeks, or 64% of the time.
Let's turn our attention to the week ahead. I see Carvana (CVNA +2.57%), MicroStrategy (MSTR +1.73%), and ChargePoint Holdings (CHPT 0.93%) 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
Shares of Carvana have moved sharply higher for six consecutive weeks, nearly tripling in that time. Momentum is in favor of the used car retailer, and even some analysts once bearish on Carvana are throwing in the towel.
Carvana actually had some good news to keep the rally going last week, offering up a rosy outlook for its business. Its adjusted gross profit per unit is expected to be north of $6,000 for the second quarter, a new record for Carvana. It's also now targeting adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to top $50 million, a welcome sight for a company many investors were writing off as dead just a few months ago.
Image source: Getty Images.
Let's pump the brakes for a moment. With interest rates rising and financing standards tightening, it's not as if we're about to see a surge in secondhand vehicles. Let's also not forget that Carvana is packing more than $9 billion in total debt into the trunk of its balance sheet.
With the stock surging, isn't it just a matter of time before it takes a hit after announcing a dilutive secondary offering? A few Wall Street pros jacked up their price targets on Carvana last week after its inspirational guidance, but one note of caution came from J.P. Morgan analyst Rajat Gupta. There may not be short-term liquidity concerns at Carvana right now, but an equity raise wouldn't surprise him, given the buoyant shares. With some senior notes to pay off in two years, Carvana would be silly not to cash in on its rally even if a stock sale would deliver a short-term hit to the shares.
NASDAQ: MSTR
Key Data Points
2. MicroStrategy
Crypto is a big gainer this year, but it's been sliding lately. Bitcoin and its fellow digital currencies took a hit last week after the Securities and Exchange Commission began charging leading trading platforms with securities law violations for operating as unregistered exchanges and brokerages.
MicroStrategy is a business intelligence specialist, but its ups and downs largely correlate to the highs and lows of the cryptocurrency market. It has invested $4.2 billion over the last three years to purchase roughly 140,000 Bitcoins, a stake currently worth $3.6 billion. MicroStrategy isn't going to be sued by the SEC for owning crypto, but what will be left of the company if its most distinctive feature erodes in value?
The actual business at MicroStrategy is a mess. Annual revenue has declined in all but one of the last eight years. Co-founder and Bitcoin evangelist Michael Saylor stepped down as CEO last year, but turning the flagship business around after years of crypto distraction won't be easy.
NYSE: CHPT
Key Data Points
3. ChargePoint
It's been a rough June for ChargePoint. The provider of charging stations for electric vehicles kicked off the month by offering up weak near-term guidance following a mixed quarterly report. The market has also seen the two leading U.S. automakers strike deals to make Tesla's (TSLA 0.88%) unique adapters the industry standard.
ChargePoint bulls will argue that its network is focused largely on fleets, but this development can't be positive for an industry that has already been largely commoditized. With losses continuing until at least 2025 -- and the market rapidly evolving -- ChargePoint feels like a risky investment.
The stock market is always on the move. If you're looking for safe stocks, you aren't likely to find them in Carvana, MicroStrategy, or ChargePoint this week.
