Wall Street took a step back last week. I thought my three stocks to avoid -- CarMax, Carvana, and ChargePoint Holdings -- were going to lose to the market in the past week. They rose 9%, fell 15%, and plummeted 17%, respectively. The final result was an average decline of 7.7% for the week. Ouch!
The S&P 500 moved 1.4% lower, so I was right. I've still been right in 56 of the past 88 weeks, or 63% of the time.
Let's turn our attention to the week ahead. I see Carvana (CVNA +1.41%), H.B. Fuller (FUL 3.59%), and Walgreens Boots Alliance (WBA +0.00%) 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: CVNA
Key Data Points
1. Carvana
After seven consecutive weeks of huge gains -- a 265% surge in that time -- Carvana stock finally took a step back last week. Where do we go after last week's 15% decline?
The stock's winning streak ended largely on Friday morning, when a Forbes report suggested that one of Carvana's former vendors was stealing from the used-car retailer through duplicate invoice billings. It will take time for this story to play out, and it doesn't imply that Carvana itself is at fault. However, there's now a reason for momentum to turn bearish for one of the hottest stocks since early May.
Image source: Getty Images.
Carvana has come a long way. Six months ago it was generating bankruptcy chatter, and it has largely overcome those obstacles. The economy and interest rates are showing signs of stabilizing, a potent combo for any industry selling financed big-ticket items.
The shares are still susceptible to a dilutive stock offering. Carvana has more than $9 billion in total debt on its balance sheet, and analysts don't see it turning a profit until 2027. After the big surge its stock experienced, it would be a shock if it doesn't go for a secondary stock offering. Printing new shares would hit the stock, but it will regret not going that route if the shares continue to give back its recent gains.
NYSE: FUL
Key Data Points
2. H.B. Fuller
You would think the world's largest pure-play adhesives provider would know a thing or two about sticking the landing, but H.B. Fuller has proved mortal during earnings season. It has fallen short of Wall Street profit targets in back-to-back quarters, and -- guess what -- it steps up with its fiscal second-quarter results on Wednesday afternoon.
The market's not holding out for much. Analysts are forecasting a 6% decline in earnings per share on a 2% dip in revenue. Its recent performance against expectations hasn't been very encouraging.
H.B. Fuller isn't a flight risk. It's been around since 1887, and it will continue to be around for some time. However, ho-hum growth is only rewarding if it's a value stock or if it's an income play. Right now, H.B. Fuller doesn't check off either box. The stock is trading for 21 times trailing earnings, not exactly a bargain for a stock when revenue is going the wrong way. Its 1.3% dividend yield can't compete with current money market rates.
NASDAQ: WBA
Key Data Points
3. Walgreens Boots Alliance
It's not surprising to see publicly traded drugstore operators trading close to their 52-week lows in a climate of rising equity prices. Chains are now battling online pharmacies bent on cutting costs as well as government moves to lower prescription prices across the country. Throw in rising labor costs and historically thin profit margins, and it's an ailment that doesn't have easy-to-fill prescription.
Walgreens will discuss its fiscal third-quarter on Tuesday morning. Like H.B. Fuller's report, this one also isn't expected to be pretty. Wall Street pros see revenue climbing 5% with an 11% move higher on the bottom line. This might not seem so problematic until you realize that revenue slipped 4% on a 30% plunge in adjusted earnings in last year's fiscal third quarter. In short, the pharmacy and healthcare specialist is earning less than it was two years ago on flat revenue growth.
Unlike H.B. Fuller, Walgreens sports a head-turning yield of 6.1%. It has increased its dividend in each of the past 47 years. Will that streak stretch to 48 years this summer? With analysts scaling back their near-term profit expectations, Walgreens can't afford to be too generous. There's room for a small, token increase at best. The worst-case scenario is that it realizes it will need to keep more of its money to afford the reinvention process.
The stock market is always on the move. If you're looking for safe stocks, you aren't likely to find them in Carvana, H.B. Fuller, or Walgreens Boots Alliance this week.
