Wall Street kept moving higher last week. I thought my three stocks to avoid for that week -- Analog Devices, Nvidia, and Unity Software -- were going to lose to the market. They were flat, fell 3%, and dropped 1%, respectively, for an average decline of 1.3% for the week.
The S&P 500 rose 1% higher, so I was right. I have been correct in 69 of the past 109 weeks, or 63% of the time.
Let's turn our attention to the new week. I see Warner Bros. Discovery (WBD -2.17%), Ambarella (AMBA 1.87%), and Big Lots (BIG) 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. Warner Bros. Discovery
If you're a Warner Bros. Discovery shareholder -- and not a fan of cheap streaming video services -- you have a right to be concerned with how Black Friday played out over the weekend. Many of the major studios put out ridiculous promotional offers for their ad-supported streaming platforms, and not just for a month of two. If you thought it was tough for a streaming service not named Netflix (NFLX -0.63%) to turn a profit, welcome to another year of customers locked in to unsustainably low subscription rates.
Warner Bros. Discovery was already in a bind. The stock took a big hit earlier this month after the release of disappointing financial results. It fell short of Wall Street revenue and profit targets, but that wasn't the deal-breaker. The company behind iconic entertainment brands including HBO, Warner Bros., DC Comics, and Discovery has posted larger-than-expected quarterly losses for more than a year. The real sticking point for its investors was its update for 2024.
Image source: Getty Images.
Warner Bros. Discovery is one of the money-losing streaming giants that were initially hoping to turn things around next year. Warner Bros. Discovery became one of the first ones to pull out of that particular contest. It warned this month that it may not meet its 2024 net leverage targets.
The weak ad market isn't helping, but the bigger problem is that the push to increase prices this year for almost every streaming service is starting to affect churn. Warner Bros. Discovery posted a sequential dip in subscribers in its latest quarter. With this holiday shopping season's massive full-year promotional markdowns, it won't be easy to get consumers to pay full price again in the near future.
2. Ambarella
It hasn't been a pretty picture lately for the maker of camera chips. Ambarella reports its fiscal third-quarter results on Thursday, and investors are bracing for an uninspiring report. Analysts are targeting just $50 million in revenue, a 40% plunge from where it was a year earlier. It will be the fifth consecutive quarter of declining revenue, Ambarella's third straight double-digit slide, and the largest top-line slide in that problematic run.
Ambarella is also expected to post a substantial loss for the third straight quarter. It was a rock star a year ago, when the mobile migration was in full swing and its energy-efficient systems-on-a-chip helped smartphones process high-def video. Folks still want great cameras in their phones, cars, and surveillance products, but it's a cutthroat market. Ambarella has now had double-digit revenue growth in just one of these past eight fiscal years, and it's been negative growth in five of those years.
3. Big Lots
Discount retailers have historically been a smart place to be when the economy is going through things, but this year has been particularly rough. Shrinkage, troublesome debt levels in a high-rate environment, and customers who are gravitating to low-margin foodstuffs are crushing many household names. Big Lots is one of them.
The big-box chain selling overstocks and clearance items is in a rough spot. It suspended its quarterly dividend in March of this year, and it's probably not coming back. When it reports this week, it should be the tenth consecutive quarter of declining year-over-year revenue. The more problematic streak is that Big Lots will inevitably post a substantial deficit for its seventh straight quarter.
Analysts don't see a return to profitability for a couple of years. Will it last that long? With more than $2 billion of net debt on its balance sheet and negative free cash flow, Big Lots could be on borrowed time.
The stock market is always on the move. If you're looking for safe stocks, you aren't likely to find them in Warner Bros. Discovery, Ambarella, and Big Lots this week.
