Even as Wall Street keeps inching higher, I thought my three stocks to avoid for last week -- Dollar General, Thor Industries, and Big Lots -- were going to lose to the market. They fell 6%, rose 4%, and slipped 4%, respectively, for an average decline of 2% for the week.
The S&P 500 inched 0.2% higher, so I was correct. I have been right in 70 of the past 111 weeks, or 63% of the time.
Let's turn our attention to the new week. I see Altria (MO +0.34%), Lennar (LEN +2.70%), and D.R. Horton (DHI +1.04%) 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
The market's been rallying lately. Economic data has been kind on everything from inflation to unemployment levels. There's a growing sentiment that what optimists hoped would be a soft landing in 2024 winds up providing an even better bounce. Even growth stocks have been pushing their way back to market leadership.
Then there's Altria, whose shares are trading slightly lower in 2023, and that return is adjusted for its chunky quarterly dividend. Bulls will argue that its 9.5% yield will woo investors, even more so if interest rates on traditional fixed-income vehicles start to retreat in 2024. My bearish counter is that the disparity will only draw attention to the reason Altria's payout is so massive: Its prognosis is dim, and it's giving away its money like someone taking a last puff on a cigarette before snuffing it out to head inside.
Image source: Getty Images.
Revenue declined 2.5% net of excise taxes in its latest quarter on flat earnings growth. But then Altria has never been a fast-growing head turner. You have to go back more than two decades to find the last time annual revenue moved more than 6% higher. However, the recent trend has been painful. Revenue has declined in six of the past seven quarters.
The pandemic initially provided a lift, but now that folks are going back to in-office work, dining at restaurants, and socializing in closed spaces, the opportunities to light up are fading. With student loan repayments recently resuming, it's not as if the next generation will be eager to take up the habit. Altria is a free cash flow machine, but the future could be problematic.
NYSE: LEN
Key Data Points
2. Lennar
Shares of homebuilder Lennar hit another all-time high on Friday. That makes sense at first. High mortgage rates have cooled the overall housing market, but it has also frozen the supply of secondhand homes from hitting the market. Folks don't want to sell their homes and give up their low current mortgages.
Lennar reports its fiscal fourth-quarter results after Thursday's market close. But after several blowout performances, analysts do see Lennar feeling pretty mortal. Wall Street pros are bracing for flat revenue and earnings growth this week.
Lennar has earned the benefit of the doubt. It has topped profit targets by a double-digit percentage in each of its last three reports, and another beat is likely. However, Lennar knows the score. Mortgage rates have fallen sharply since peaking in late October. It won't be long before individual homeowners feel comfortable putting their properties up for sale again, and developers carving out new communities in the suburbs should start to feel the pinch as the lack of available homes becomes a glut.
NYSE: DHI
Key Data Points
3. D.R. Horton
D.R. Horton is the country's largest residential real estate developer. It also hit another all-time high on Friday. It's not reporting fresh financials this week, but if Lennar paints a foggy picture of the market, it could take down the other players.
I get that the multiples appear low for homebuilders, but this is a cyclical business. When the market turns, it's a swift and sometimes brutal turn.
The stock market is always on the move. If you're looking for safe stocks, you aren't likely to find them in Altria, Lennar, and D.R. Horton this week.
