Wall Street took another step back last week. I thought my three stocks to avoid for that week -- Opendoor Technologies (OPEN 1.03%), Nike (NKE 0.17%), and Carvana (CVNA 0.39%) -- were going to lose to the market. They rose 3%, climbed 5%, and were flat, respectively, for an average gain of 2.7% for the week.
The S&P 500 moved 0.7% lower, so I was wrong. I've still been right in 63 of the past 101 weeks, or 62% of the time.
Let's turn our attention to the current week. I see RH (RH 0.63%), Cal-Maine (CALM 1.02%), and Carvana (CVNA 0.39%) as stocks you might want to consider steering clear of this week. Let's go over my near-term concerns with all three investments.
NASDAQ: OPEN
Key Data Points
1. RH
It's not easy selling furniture -- much less luxury furniture -- these days. The economic outlook is muddy. Interest rates on financed purchases are elevated. Perhaps more importantly, the housing market that often inspires a shopping spree for fixtures and furnishings to spruce up new digs has stalled in the current climate.
RH is feeling the pinch. The company that used to be known as Restoration Hardware and still cranks out seasonal 600-plus-page sourcebook showing off its latest collections is in a funk. Revenue has posted double-digit percentage declines in four consecutive quarters, and the negative top-line gains will only continue in the near term. The midpoint of RH's guidance calls for revenue to decline 14% this year, down 18% from the revenue peak two years ago. Profitability is expected to be cut by more than half.
Image source: Getty Images.
At least three bullish analysts lowered their price targets on the high-end furniture and decor retailer as it posted mixed financial results. RH beat expectations for the fiscal second quarter, but its outlook for the fiscal third quarter that ends later this month was shy of market expectations.
Wall Street sees RH taking more than three years to get back to its 2021 peak on both ends of the income statement. A lot can happen between now and then. An economic setback can be deep. Market leadership for luxury home pieces can change hands.
RH spent $1.2 billion to repurchase 17% of its shares in its latest quarter. I'm a fan of companies that eat their own cooking, but this is one of the exceptions. This is a leveraged company that ate into its now thin cash reserves to bankroll its substantial buyback. Its debt interest expenses keep rising, and this is happening at a time of great uncertainty for the business. The timing is also lousy. RH knew that the second half of this year would be challenging, but it still paid an average price of $325.65 per share for its Q2 buyback. The stock is nearly 20% lower today. RH knows how to dress up a room, but this time it failed to read the room.
NYSE: NKE
Key Data Points
2. Cal-Maine
There aren't a lot of companies reporting earnings this week, but one that could prove problematic is Cal-Maine. The egg producer was a beneficiary of prices skyrocketing during a supply shortage last year, but reality has come home to roost for Cal-Maine and its peers.
Cal-Maine reports its financial results for its fiscal first quarter of 2024 on Tuesday. It won't be pretty. Analysts see a 22% year-over-year revenue decline, but a brutal 87% plunge in earnings per share. Last year was an anomaly, but the comparisons will only get worse as the new fiscal year plays out. Analysts see revenue sliding 37% for all of fiscal 2024.
NYSE: CVNA
Key Data Points
3. Carvana
I'll stick with Carvana for another week. Averting the government shutdown may provide the market a sign of relief, but that doesn't mean auto financing will get any easier. Carvana outlived the rumors of its demise that began circulating last year, making me stand out -- in a good way -- with a bullish call on the stock last December.
However, the seller of used vehicles is already a nine-bagger this year. It's vulnerable for a pullback. I was wrong in calling for a correction earlier this year, but the dynamics of the auto market and the increasing difficulty of getting approvals from creditors will be challenging for the industry.
The stock market is always on the move. If you're looking for safe stocks, you aren't likely to find them in RH, Cal-Maine, and Carvana this week.
