Every weekend for the past few months I’ve tried to single out three stocks that will lose to the market in the coming week. My three stocks to avoid last week were all over the place – down 7%, up 3%, and up 4% – averaging a goose egg because the loser’s 7% drop was exactly offset by the lower earnings of the other two choices.
The S&P 500 took a 0.6% hit for the week, so I lost for what is just the third time in the past 13 weeks. Can I get back on track? This week I see Oats (NASDAQ: OTLY), Point correction (NASDAQ: SFIX), and American Airlines Group (NASDAQ: AAL) as vulnerable short-term investments. Here’s why I think these are three actions to avoid this week.
The only lead in last week’s list was Oatly, slipping 7% as the company behind oat milk, yogurt and frozen desserts faces valuation issues following an introduction initially well received in the spring. Last week’s slide dropped it below its original price of $ 17 in May.
The stock price is more attractive than it was a week earlier, but the math is still not good. Is a company that markets a branded product really worth a market cap of $ 9.6 billion on revenues of just $ 528 million?
Oatly is growing rapidly as consumers embrace oat-based dairy alternatives, but the whole niche is booming to the point of attracting fierce competitors drawn by the market opportunity. With little product differentiation, is one brand enough to stand out in this low-margin market? Oatly has made smart distribution deals and is increasing its production volume, but it’s hard to justify paying 18 times the leakage revenue for a company in its situation.
There are only a handful of companies releasing new financial results this week, but one name that intrigued me is Stitch Fix. It was a market darling last year, but the supplier of wardrobe selections has lost more than two-thirds of its value since peaking in triple digits in January.
A lot has happened to Stitch Fix these days. It brought new leadership and, like most garment delivery specialists, faced supply constraints and spikes in fulfillment costs. However, the real threat it faces right now is that shopping malls are starting to hit pre-pandemic levels again.
Stitch Fix was a smart choice for consumers in a pandemic willing to pay extra for fashionista-advised ecommerce. With those same 4.1 million active customers eager to return to stores, can this continue to hold up? Another thing to watch out for were reports last month that a third of its stylists quit after the company ended its flexible planning policy. It will certainly be addressed during the call.
Analysts see a decrease in the quarterly loss on a 24% year-over-year increase in revenue when Stitch Fix reports Tuesday. The stock is depressed now, so even a burst of good news can start stocks in the right direction. He’s still got a lot to prove, so he’s making the cut until there’s a fix for Stitch Fix.
There was social media turmoil for the historic carrier last week after a video went viral of a mother and her family who were kicked out of an departing American Airlines plane after her two year old toddler was not wearing a mask properly while experiencing an asthma attack. It wasn’t a good look for the already struggling airline.
There are two sides to every story, and American Airlines has answered the question. The air carrier claimed that the crew had not been made aware of the young passenger’s asthmatic condition during the incident. American Airlines also pointed out that it was not just the mask issue, as the family did not comply with requests from crew members to remain seated in an active taxiway. The group was booked on a subsequent flight without incident.
Obviously, a single flight hiccup isn’t the only reason to put American Airlines on this list. The real catch is that the airline industry in general and American Airlines in particular have struggled to get back on track to the new normal. American’s last quarter revenue is still 21% lower than the same period two years ago. With business travel unlikely to make a full recovery and travel restrictions and pandemic safety concerns keeping leisure travel in check, it will be a bumpy flight for American and its peers.
If you’re looking for safe stocks, you probably won’t find them at Oatly, Stitch Fix, and American Airlines this week.
This article represents the opinion of the author, who may disagree with the âofficialâ recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.