Wall Street finally moved higher last week. I thought my three stocks to avoid for that week -- Angi, Blink Charging, and Mosaic -- were going to lose to the market. They rose 5%, 13%, and 1%, respectively, for an average jump of 6.3% for the week.
The S&P 500 moved just 1.3% higher, so I was wrong. I have still been right in 67 of the past 107 weeks, or 62% of the time.
Let's turn our attention to the new week. I see Sea Limited (SE 1.59%), Warner Music Group (WMG +0.77%), and Unity Software (U 3.05%) 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: SE
Key Data Points
1. Sea Limited
Sea Limited was once a high-octane ways for growth investors to buy into a basket of Asia's important growth industries. The Singapore-based company is a major player in e-commerce, online gaming, and fintech. The stock has gone on to plummet 88% from its peak in late 2021.
After four consecutive years of triple-digit revenue growth, business decelerated sharply at Sea Limited, with a 25% increase in 2022. It's seen single-digit gains on the top line for the last three quarters. The company reports again this week, serving up its third-quarter results before the U.S. market opens on Tuesday, and it's going to be a mixed showing.
Image source: Getty Images.
Analysts see Sea Limited posting a profit for the fourth quarter in a row. The bad news is that they're also targeting a 1% year-over-year decline in revenue. How did Sea Limited go from consistently doubling revenue to negative growth in a span of two years? Growth investors won't like the answer, but value investors may lend a sympathetic ear.
Sea Limited's Shopee e-commerce segment was booming through the first two pandemic-saddled years. It discounted heavily and subsidized shipments to serve customers, but it meant 10-figure annual losses. It's hard to justify burning through capital that is challenging to raise when a stock is tanking, so Shopee has taken a more sustainable pricing approach. It's no longer in the red, but the shopping frenzy has cooled now that buyers have to cover their costs. With Wall Street pros slashing their profit targets in recent weeks momentum isn't on Sea Limited's side.
NASDAQ: WMG
Key Data Points
2. Warner Music Group
The music industry isn't dead. The major record labels are finding ways to navigate the choppy waters of the digital revolution. Warner Music Group isn't just a survivor. It's thriving, rattling off double-digit revenue growth in five of the last six fiscal years.
Now let's play a different tune. Warner Music Group reports its fiscal fourth-quarter results on Thursday morning. Revenue growth has slowed, clocking in with single-digit gains for five consecutive quarters, including a year-over-year decline at one point. It has fallen short of Wall Street profit targets in two of the past three reports.
The long-term view is just as uninspiring. The digital revolution is making it easier for the biggest recording stars to take control of their music. Warner Music Group is appeasing investors with its 2% yield, but what becomes of the payouts as royalties start to thin out in the inevitable future that doesn't need a label as a middleman? The next step down could come following a disappointing financial update this week.
NYSE: U
Key Data Points
3. Unity Software
Unity Software took investors on a wild ride late last week. The game-engine developer plummeted on Thursday night after posting problematic quarterly results. Revenue rose a weaker than expected 8% on a pro forma basis, and it reported a loss. Given the foggy operating climate, Unity also suspended its near-term guidance. Instead of a "beat and raise" investors got a "miss and raze" report.
The stock would go on to open 12% lower on Friday, but it clawed its way somehow to a 7% gain by the closing bell. It's not the only stunning reversal at Unity. It had to backtrack on a new fee for developers in September, two weeks after announcing the move. There's also a new CEO.
Short interest at a five-month high could explain the stock squeezing its way higher on a bad report, but is that sustainable? New week. Same old gravity.
The stock market is always on the move. If you're looking for safe stocks, you aren't likely to find them in Sea Limited, Warner Music Group, and Unity this week.
