Wall Street bounced back last week. I thought my three stocks to avoid for that week -- RH, Cal-Maine, and Carvana -- were going to lose to the market. They fell 6%, 5%, and 10%, respectively, for an average decline of 7% for the week.
The S&P 500 moved 0.5% higher, so I was right. I have been correct in 64 of the past 102 weeks, or 63% of the time.
Let's turn our attention to the current week. I see Walgreens Boots Alliance (WBA +0.00%), Equinix (EQIX 0.16%), and Carvana (CVNA +2.57%) 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: WBA
Key Data Points
1. Walgreens Boots Alliance
It's not easy being a drugstore operator these days. Online retailers and cost-cutting next-gen disruptors are eating into traditional pharmacies. Walgreens Boots Alliance is surviving, but it's definitely not thriving. It's about to wrap up its fifth consecutive fiscal year when it fails to deliver double-digit revenue growth.
Walgreens Boots Alliance reports its fiscal fourth-quarter results on Thursday morning. It's not expected to be pretty. Analysts see a 2% increase on the top line with earnings per share declining by 19%. The trends are even more problematic.
Image source: Getty Images.
The drugstore retailer with more than 13,000 locations worldwide can't catch a break. It fell short of Wall Street earnings targets in its fiscal third quarter, hosing down its guidance in the process. Forward estimates have been inching lower in recent weeks ahead of this week's financial update. Walgreens Boots Alliance is also shedding executives. Its CFO stepped down in July. Its CEO abruptly followed him out the door last month.
Bulls will argue that the stock's chunky yield will bail investors out of its uninspiring financial performance. The payout isn't sustainable the way that momentum is heading. Analysts see earnings per share falling 25% for the fiscal year that ended in August. They see profits continuing to slide in fiscal 2024. With $37.4 billion in debt, it's not a good time to be a leveraged company in a struggling industry. Don't be surprised if shareholders follow key executives out the door with another bad report on Thursday.
NASDAQ: EQIX
Key Data Points
2. Equinix
With interest rates expected to remain high for the time being, it's easy to see why leveraged real estate investment trusts (REITs) with low relative yields have taken a hit. One REIT that is bucking the trend -- trading closer to its 52-week high than its low -- is Equinix. Self-billed as "the world's digital infrastructure company," Equinix has an impressive and growing list of companies leaning on its fleet of data centers to expand their digital footprint.
Here's the rub. Equinix is yielding a paltry 1.9%, less than half what investors can safely collect in the leading money market funds. Equinix is appealing for the growth it provides on top of its low payouts, and it's been holding up better than lesser REITs because investors view it as an AI play. The push for artificial intelligence is going to mean investing more in digital infrastructure.
Reality may not live up to the hype, especially if an economic downturn slows the ramp up in capital expenditures. With an enterprise value approaching $83 billion, it seems pretty vulnerable here.
NYSE: CVNA
Key Data Points
3. Carvana
There was encouraging news for the auto industry in general last week. September sales data shows improvement for the month -- and the quarter itself -- with particularly robust demand for electric vehicles (EVs) and light trucks. Let's keep driving to see why Carvana returns this week despite its 10% drop last week.
Carvana continues to be one of this year's biggest gainers. However, did you notice that Tesla, the country's largest maker of EVs, lowered prices again last week? What do you think this will do for the premiums that Carvana can charge for its secondhand cars? Carvana investors may also want to keep an eye on the pace of auto loan delinquencies. Carvana got the last laugh on bears figuring that the auto retailer would buckle earlier this year. The stock's stiff valuation could have the ultimate laugh.
The stock market is always on the move. If you're looking for safe stocks, you aren't likely to find them in Walgreens Boots Alliance, Equinix, and Carvana this week.
