3 Stocks to Avoid This Week

The markets are moving higher again, and the same can be said about my three stocks to avoid for last week. The three names I figured were going to move lower for the week — AMC Entertainment ( AMC 22.91% ), BuzzFeed ( BZFD 1.02% )and Ollie’s Bargain Outlet Holdings ( OLI -3.66% ) — climbed 28%, 3%, and 1%, respectively, averaging out to a hearty 10.7% increase.

Tea S&P500 pink 1.8% for the week, so I fell well short on my stocks to avoid. I’m still winning more often than not, though. The S&P 500 has still outperformed my bearish picks — meaning that I beat the market, as these are stocks I suggest investors avoid — in 18 of the past 23 weeks. This week, I see GameStop ( GME 12.37% ), chewy ( CHWY 1.65% )and AMC Entertainment as stocks that you may want to consider steering clear from. Let’s go over my near-term concerns.

Image source: Getty Images.

GameStop

I was right to pick GameStop in this column when it posted financial results two weeks ago, as the video game retailer slipped 2% in an otherwise buoyant week for the market. However, after seeing the stock surge 67% last week — one of Wall Street’s biggest winners — I’m going to put it back on this list after a fortunate one-week hiatus.

There was some encouraging insider buying at GameStop last week, but certainly not the kind of volume that would warrant this kind of surge. GameStop has done some smart things since garnering national attention after becoming a meme stock, and unlike the stance Barron’s took this past weekend — blasting the retailer’s plan to launch an NFT marketplace by this summer — I think GameStop has a chance to expand into digital next-gen platforms with its brand awareness.

The problem is that GameStop has a lot to prove. It has posted four consecutive fiscal years of nine-figure losses. Its trailing revenue is not only less than it was two years ago, but also 37% below its peak revenue from a decade past. Its original model is fading in a world of digital distribution of games, and losses will continue since corporate reinventions don’t come cheap.

chewy

One of the companies stepping up with fresh financials this week is Chewy, the online retailer of pet food, accessories, and other supplies. We’ve seen pet stocks languishing in recent months, which is surprising since so many of us adopted furry friends two years ago, when the pandemic began. The bullish thesis was that we would be spoiling these new members of our family for years, but the publicly traded plays cashing in on this trend have been real dogs as investments.

Momentum isn’t kind as we head into Chewy’s fiscal fourth-quarter results shortly after Tuesday’s close. Chewy stock has fallen in back-to-back quarters, reporting a wider loss than expected with problematic guidance. The long-term outlook is promising here, but until it breaks this string of disappointing financial updates, Chewy should be crated.

AMC Entertainment

The country’s largest multiplex operator was the biggest gainer of the three stocks to avoid in my column last week. The stock rose despite a lack of bullish developments. The puzzling purchase of a penny-stock miner continues to unravel. The mining company’s shares have fallen since the AMC deal was announced, and last week the miner diluted its investors in a cash-raising move.

Life isn’t holding up much better for AMC on its flagship silver screen. The quarter that ends this week has been a dud. Ticket sales for the industry this year are 42% below where they were at this point in 2019. Go back to 2018 and 2017, and we’re talking about 52% and 54% declines in domestic box office receipts. AMC is gaining market share and growing its concession sales. Its comparisons will be kinder, but still well short of where it was three, four, and five years ago.

The good news for AMC is that a bigger slate of potential blockbuster movies is coming. Will it be enough to justify the stock’s historically high valuation? The chain’s curious move to go pumping penny stocks — and failing, so far — is not a good look.

If you’re looking for safe stocks, you aren’t likely to find them in GameStop, Chewy, and AMC Entertainment this week.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Leave a Reply