Wall Street surged back to life last week. I thought my three stocks to avoid -- Carvana, H.B. Fuller, and Walgreens Boots Alliance -- were going to lose to the market in the past week. They rose 21%, climbed 13%, and fell 9%, respectively. The final result was an average gain of 8.3% for the week.
The S&P 500 moved 2.3% higher. I was very wrong. I've still been right in 56 of the past 89 weeks, or 63% of the time.
Let's turn our attention to the week ahead. I see Altria (MO +0.28%), Levi Strauss (LEVI 3.58%), and Joby Aviation (JOBY 5.01%) 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
Market sentiment has been improving in recent months, and I'm not just talking about the bullish stock upticks. Analyst outlooks have improved for most companies in recent months, as cost cuts and positive consumer sentiment find Wall Street profit and revenue targets on the rise. Most stocks in your portfolio are likely to be fundamentally better -- if not substantially better -- than they were in the springtime.
Altria is one of the exceptions. The tobacco giant is seeing Wall Street pros lower their net income projections in recent weeks. Its growth prospects remain dull, and litigation risks remain high. Back in May, it entered into a settlement to pay $235 million for thousands of cases related to its Juul vaping products, and there are many other open cases waiting to take a bite out of Altria.
Image source: Getty Images.
The stock's 8.5% yield is impressive, but it's not sustainable for the long haul as growth fades and the sin stock's legal combatants have their day in court. Analysts see revenue rising a mere 0.6% this year, with adjusted earnings per share climbing by less than 3%.
Singling out Altria as a stock to avoid this week isn't a matter of coming down on its portfolio of tobacco, wine, e-cigarette, and cannabis products on moral grounds. They are all legally accepted vices with huge addressable markets. My concern is for investors in a company that is failing to impress in terms of growth. This isn't the Altria of old that would routinely trounce analyst expectations. It has failed to beat Wall Street earnings projections by at least 1% in more than a year. Annual revenue growth hasn't exceeded 6% in any year over the past 20 years.
Income investors flock to Altria for its hefty payout and historically low volatility, but that could be a mistake. It's going the wrong way at a time when the fundamentals for most publicly traded companies is on the rise. The growth ceiling has been capped for decades, and that's with acquisitions that have only increased its exposure to legal liabilities. The ceiling, unlike the floor, is closer than you may think.
NYSE: LEVI
Key Data Points
2. Levi Strauss
The first week of July is always going to be quiet on the earnings front, and that's even before considering the trading holiday wedged in there on Tuesday. Levi Strauss is one of the few familiar companies reporting fresh financials this week. It steps up on Thursday afternoon with its fiscal second-quarter numbers, and the report is not likely to be pretty.
Analysts are bracing for a 9% decline in revenue and a nearly 90% plunge -- yes, 90% -- in net income per share. The pioneer of denim jeans has done a good job of beating expectations on the bottom line over the past year, and the bar is certainly set low this time. But there are still reasons to steer clear of Levi Strauss.
Citi lowered its price target on the shares from $17 to $15 late last week. It's not a good sign when an analyst is putting out a cautious note just days before an actual quarterly update. Citi believes that the quarter itself will be in line with Wall Street estimates but that risks await in the second half of the year. Direct-to-consumer stores have been experiencing weakness in recent months, and Levi Strauss also has exposure to softness at factory outlets.
NYSE: JOBY
Key Data Points
3. Joby Aviation
One of last week's biggest winners was Joby Aviation, surging 62% on a string of good news. The emerging provider of air taxi services cleared a regulatory hurdle for airworthiness and secured a notable international investor.
The long-term outlook for Joby Aviation is bullish, but right now it's a pre-revenue company with a nearly $7 billion market cap. It should finally start to generate top-line results next year, but it's at least five years away from profitability. With many players in what for now seems to be a thin addressable market, it's better to buy on dips than buy late into last week's rally.
The stock market is always on the move. If you're looking for safe stocks, you aren't likely to find them in Altria, Levi Strauss, and Joby Aviation this week.
