Wall Street had its ups and downs last week. I thought my three stocks to avoid -- AT&T, Sonic Automotive, and Pool Corp. -- were going to lose to the market in the past week. They fell 2%, slipped 3%, and rose 4%, respectively. The final result was an average decline of 0.3% for the week.
The S&P 500 moved 1% higher. I was right. I've been correct in 59 of the past 93 weeks, or 63% of the time.
Let's turn our attention to the week ahead. I see Frontier Communications (FYBR 1.37%), Cedar Fair (FUN 1.11%), and Pool Corp. (POOL 0.32%) 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. Frontier Communications
Telcos can't seem to catch a break, and things are even harder for smaller players dealing with languishing growth prospects as costs rise to grow their digital infrastructure. The latest blow to the industry came this summer, when the environmental concerns of lead-sheathed cables emerged, but Frontier has been fading for years.
Unlike many telcos with hefty payouts, Frontier hasn't delivered a quarterly dividend in more than five years. There's no growth here. Revenue has declined for five consecutive years, and analysts see revenue continuing to decline when it reports fresh financial results on Friday morning. Wall Street also sees a loss, reversing a profit from the prior year's second quarter.
Image source: Getty Images.
In its latest quarter, Frontier brags about achieving EBITDA growth for the first time in five years, but did you know that its interest expense -- the "I" in EBITDA that it's subtracting -- has soared 37% over the past year? Suddenly a 2% increase in EBITDA from depressed results a year earlier doesn't seem so applause-worthy. With rates rising and Frontier's debt approaching $10 billion, it's hard to fathom why one would be investing in a company providing broadband connectivity and other telco services in this cutthroat business, where even the better capitalized leaders are struggling.
2. Cedar Fair
As a roller-coaster enthusiast, I have nothing but kind things to say about Cedar Fair's flagship Cedar Point park in Ohio. I go there to unlock the kid inside me. However, Cedar Fair could be one of the more problematic companies reporting financial results this week.
Cedar Fair reports quarterly results on Thursday morning. Despite being one more year removed from the COVID-19 crisis, analysts see a slight dip in revenue for the potent springtime quarter, when many of its gated attractions come back to life. A profit should reverse a year-ago deficit, but Cedar Fair has missed Wall Street earnings estimates in two of the three previous reports.
Let's cut to the chase: It's hot out there. We're seeing reports of soft attendance trends at the major theme parks, as well as the regional amusement parks where Cedar Fair earns its funnel cakes. Cedar Fair also has water parks that are probably thriving in this climate, but they don't generate turnstile clicks the way its dry parks do. With estimates inching lower in recent weeks, it's not looking promising for Cedar Fair in its latest report, even if business is picking up in July and the thrill-maker offers a rosy outlook for its peak summertime quarter.
3. Pool Corp.
There's a fine line between swimming and sinking. It's been two weeks since Pool Corp. posted second-quarter results, and the performance wasn't pretty. The world's largest wholesale distributor of swimming pool and related backyard products saw its sales plunge 10%, worse than what Wall Street was expecting. A 30% slide in earnings per share marked the third straight time Pool Corp. fell short of analyst forecasts on the bottom line.
Despite the rough report, Pool Corp. shares have moved higher in back-to-back weeks. The stock is up 28% in 2023, surprising for a business that is going the wrong way. With high mortgage rates cooling both the housing market and the ability to finance home-improvement projects, the appeal of Pool Corp. seems misplaced outside of just how hot this summer has been. The stock -- like the weather -- should cool down as we head into the final five months of this year.
The stock market is always on the move. If you're looking for safe stocks, you aren't likely to find them in AT&T, Frontier Communications, or Pool Corp. this week.
