Wall Street is rolling, but not every stock is playing along. I thought my three stocks to avoid for last week -- Altria, Lennar, and D.R. Horton -- were going to lose to the market. They rose 1%, 7%, and 8%, respectively, for an average gain of 5.3% for the week.
The S&P 500 inched 2.5% higher, so I fell short. I have still been right in 70 of the past 112 weeks, or 63% of the time.
Let's turn our attention to the new week. I see Steelcase (SCS 1.26%), CarMax (KMX 0.54%), and Lennar (LEN 0.98%) 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. Steelcase
There aren't a lot of companies reporting financial results this week, but one name that could fall short is Steelcase. The maker of office furniture reports results for its fiscal third quarter of 2024 after Tuesday's market close. It will discuss the numbers on Wednesday morning.
Steelcase would seem to be a winner in the current climate. Companies are calling employees back to the office, and that should spur demand for the stylish office essentials that Steelcase provides.
Reality hasn't been as kind. Revenue growth has actually decelerated sharply in the last few quarters.
- Q1 2023: 33%
- Q2 2023: 19%
- Q3 2023: 12
- Q4 2023: 7
- Q1 2024: 2
- Q2 2024: (1%)
The company's guidance calls for a 3% to 6% year-over-year decline in this week's quarterly update. It's shaping up to be the sixth consecutive quarter of decelerating top-line growth.
If you're wondering why business isn't expanding, you may find a clue in the pink slips. Steelcase laid off 180 salaried workers in September of last year and followed that up with hundreds of job cuts in the springtime of this year.
Image source: Getty Images.
This leads to a couple of things worth discussing. We can start with the irony that even a company sprucing up office spaces is trimming its own workforce. With companies trying to do more with less, there's naturally less demand for Steelcase products. Businesses trying to improve their bottom lines also means that they're less likely to spend on upgrades.
It will take a couple of years for Steelcase to return to pre-pandemic revenue and earnings levels. It may not get there, but the point right now is that business is still going the wrong way.
2. CarMax
There's no debating that CarMax is the class act among used-car retailers. It moved 810,000 pre-owned vehicles in fiscal 2023.
That doesn't mean it's struggling to find a way to shift out of reverse. Annual revenue is declining for the third time in the past four fiscal years. It will pull up for its fiscal third-quarter results on Thursday morning.
Analysts see CarMax's profitability nearly doubling to $0.47 a share, but that's expected to come on a 7% year-over-year decline in revenue. Making matters worse, profit targets for the quarter have been inching lower in recent weeks. CarMax missed Wall Street's net income estimate last time out, too.
3. Lennar
I figured that Lennar would stumble last week, and I was wrong. The stock rose 7%, but shares of the homebuilder actually declined on Friday after the company posted mixed results for its fiscal fourth quarter.
Yes, Lennar beat expectations on both ends of the income statement. It also expects the year ahead to have the same 10% increase in home deliveries that it did in fiscal 2023. But it wasn't all good news.
Lennar's guidance calls for earnings per share of $2.15 to $2.20 in the current quarter, barely above the $2.06 it posted a year earlier and well below the $2.53 that analysts were targeting. This is a seasonally slow period for homebuilders, but I'm not convinced that business will pick up in the year ahead.
As I mentioned last week, Lennar and other residential real estate developers have taken advantage of high mortgage rates. With homeowners reluctant to put their current properties on the market, the lack of supply has favored homebuilders. Lower interest rates will beef up real estate activity, but it will come at the expense of developers losing market share to secondhand homes.
The stock market is always on the move. If you're looking for safe stocks, you aren't likely to find them in Steelcase, CarMax, and Lennar this week.
