Wall Street had a strong surge last week, and that certainly applied to many of the more speculative names out there. I thought my three stocks to avoid -- Carvana, MicroStrategy, and ChargePoint Holdings -- were going to lose to the market in the past week. They soared 33%, 4%, and 6%, respectively. The final result was an average gain of 14% for the week.
The S&P 500 inched 2.6% higher, so I was wrong. I was really wrong. I've still been right in 55 of the past 87 weeks, or 63% of the time.
Let's turn our attention to the week ahead. I see CarMax (KMX 0.54%), Carvana (CVNA 8.79%), and ChargePoint Holdings (CHPT 0.79%) as stocks you might want to consider steering clear of this week. Let's go over my near-term concerns with all three investments.
1. CarMax
I'm going all-in on used cars this week, so let's start with CarMax. The country's leading retailer of secondhand rides is reporting earnings for its fiscal first quarter (ended in May) on Friday morning. It's not likely to be pretty. Analysts see earnings cut nearly in half on a 19% decline in revenue.
Wall Street pros have also been aiming too high lately. Analyst profit targets have fallen well short of reality in two of the last three quarters. Estimates have also been inching lower in recent weeks, a bad omen heading into this week's telltale financial update.
Following a larger-than-expected 26% year-over-year decline in revenue in its previous quarter, you would think that CarMax would be a wreck on the side of the road, but the shares are up 31% this year.
Image source: Getty Images.
CarMax is skilled at what it does. It handed over the keys to 810,000 used vehicles in fiscal 2023. Its auto financing arm originated nearly $9 billion in receivables.
But the premiums that CarMax was able to collect two years ago when new cars were hard to find are gone. Prices are reasonable again, and that's been eating away at the bottom line. Analysts see a 20% decline in earnings on a 9% slide in revenue for this fiscal year, which ends in February of 2024.
With the near-term economy still cloudy, borrowing costs high, and creditors starting to tighten their lending standards, it's hard to get excited about CarMax in the near term. Northcoast Research analyst John Healy downgraded the stock last week, and it's probably not a coincidence that this is happening a week before a potentially flimsy financial update.
CarMax is the class act of its niche when the going is good, but right now there are too many potholes in the road ahead.
2. Carvana
There was a time when I was a bullish voice in the wilderness for Carvana. Six months ago, I argued that it was a single-digit-priced stock worth buying, when bankruptcy chatter was swirling.
But I've been concerned about the speculative fervor that has made the stock a five-bagger in 2023, so I'm changing my tune.
Shares of Carvana have now moved sharply higher for seven consecutive weeks. I've been burned by putting it on this list the last couple of weeks, but my concerns only intensify as the stock steps on the gas.
Last week I argued that it was just a matter of time before it takes a hit after announcing a dilutive secondary offering. With Carvana's heavy debt burden, no one should be surprised if that announcement comes soon. Bank of America removed its rating on the stock on Thursday, also arguing that it needs a cash infusion before the end of the year while it's still easily available.
The outlook for Carvana has improved lately, but this seven-week rally has to end sometime. Whether it's gravity doing its thing or the CarMax report on Friday unsettling the used car specialists, I'm sticking with Carvana on this list for another week.
3. ChargePoint
Let's turn from charging for cars to charging them. ChargePoint is one of the few publicly traded providers of charging stations for electric vehicles (EVs). A couple of years ago, I routinely singled out the company given its unrealistic valuation. The stock has fallen sharply, and thankfully for ChargePoint, it has expanded its fleet of charging kiosks to the point where it trades at a single-digit revenue multiple.
The challenge is that it's at least three years away from profitability, and that's going to be an eternity. This month alone, we saw ChargePoint disappoint investors with weak quarterly guidance, as the country's two largest automakers embraced the unique charging adapters of Tesla (TSLA -1.11%).
The stock market is always on the move. If you're looking for safe stocks, you aren't likely to find them in CarMax, Carvana, or ChargePoint this week.
