Wall Street finally bounced back last week. I thought my three stocks to avoid -- Dollar Tree, Affirm, and Citi Trends -- were going to lose to the market in the past week. They plummeted 14%, soared 23%, and rose 8%, respectively. The final result was an average gain of 5.7% for the week.
The S&P 500 moved 0.8% higher. I was wrong. I was very wrong. But I've still been right in 61 of the past 96 weeks, or 63% of the time.
Let's turn our attention to the week ahead. I see Altria (MO +0.07%), Affirm (AFRM 2.15%), and Tilly's (TLYS +0.64%) 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
This has been a summer of redemption for many of the country's most popular growth stocks. The market leaders are finding a way to keep building off the prior year's top-line gains. Despite a climate of rising costs, companies are finding ways of growing their bottom lines. Many companies are getting better as this surprisingly buoyant year plays out. But then there's Altria.
The tobacco giant is going the other way. The long-term prospects for its collection of smoking and e-cigarettes assets is dim, if not outright problematic if we tack on litigation risks. For Altria to double down on the vice market through wine and cannabis plays is an interesting approach to diversification, but in the end it's just not paying off.
Image source: Getty Images.
Altria isn't fading away, but it's not turning heads. It hasn't topped 6% annual revenue growth in any of the last 20 years. In a bullish climate where companies are routinely trouncing expectations, Altria hasn't exceeded analyst profit targets by at least 1% in more than a year.
Analysts see revenue declining 9% in the current quarter and 7% for the whole year. They see similar dips in net income. Wall Street's earnings estimates have been inching lower in recent months, a contrast to growth stocks for which the fundamentals are largely improving. The stock's also trading marginally lower this year, even after the company adjusted for its generous payouts. Yes, Altria's 8.6% yield is juicy. However, with the top money market funds now yielding north of 5%, the gap between risky Altria and low-risk savings alternatives is narrower now than it's been in years.
NASDAQ: AFRM
Key Data Points
2. Affirm
My biggest dud from last week's column was Affirm, soaring 23% last week after the company posted blowout financial results. There was a lot to like in the latest financials from the buy-now, pay-later (BNPL) specialist. It had a strong beat0-and-raise performance. Revenue rose by a better-than-expected 22%. Affirm even jacked up its guidance.
There's more, like a robust $5.5 billion in gross merchandise volume that went through Affirm's platform in its latest quarter. The average active Affirm customer is now using the service 30% more than a year earlier.
So it was a strong report, but my concerns with the BNPL business model remain. Rising interest rates and a cloudy economic outlook make this a dicey niche.
Friday's 29% stock surge was refreshing for Affirm bulls, but a strong report isn't enough. Affirm is still a couple of years away from profitability. It wouldn't be a surprise to see Affirm give back some of Friday's sizable gains this week.
NYSE: TLYS
Key Data Points
3. Tilly's
Tilly's is in a bit of a lull. The mall-based retailer of West Coast-inspired apparel, footwear, and accessories has been meandering lately. Outside of fiscal 2021, when it was rebounding off a double-digit decline in sales during the height of the pandemic, you have to go back more than a decade to find the last time Tilly's has come through with double-digit revenue growth.
That's not going to happen this year. Tilly's will release its fiscal second-quarter results after Thursday's close, and the report is not likely to be pretty. In fact, it should be the retailer's sixth consecutive quarter of posting a double-digit sales decline.
The news on the bottom line is even worse. Three months ago, analysts were expecting Tilly's to be profitable for the fiscal second quarter, the current quarter, and the entire fiscal year. Wall Street's now bracing for red ink on all three fronts.
Tilly's has a long road back, but its stock is somehow trading closer to its 52-week high than its 52-week low. That doesn't make sense. Like a novice at a skatepark, this could be a bruising experience for investors.
The stock market is always on the move. If you're looking for safe stocks, you aren't likely to find them in Altria, Affirm, and Tilly's this week.
