Last week, I looked at three stocks to avoid, anticipating a dismal week for Interface (NASDAQ:TILE), America Airlines (NASDAQ:AAL), and Gap (NYSE:GPS). Interface’s stock has dropped 7% since the beginning of the year. The modular carpeting provider did issue its quarterly dividend this week, but it was a non-event for the company.
The stock of American Airlines increased by approximately 7%.
The shares of Gap increased by less than 1%. For the week, it increased by 13%. Bloomberg reported that the specialized retailer was considering selling its China operations. The stock’s price estimates were also raised by three analysts.
For the week, the three stocks had essentially the same return. For the week, the S&P 500 index fell 0.8 percent. This time I came up short. In the short term, I regard GameStop (NYSE:GME), America Airlines (NYSE:AAL), and Danimer Scientific (NYSE:DNMR) as vulnerable investments. This is why I believe these three stocks should be avoided this week.
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GameStop is number one.
Last week, the video game retailer’s stock dropped over a quarter of its worth. GameStop has recovered from some of its recent failures, but it will also release new financials this week. When there’s no solid news to back up bullish or bearish scenarios, it’s easy for bulls and bears to manufacture speculative hype, but today we’ll be seeing hard numbers for the first time since the meme stock took off in late January.
The numbers aren’t going to be pretty. Early in January, GameStop announced that holiday sales were down 3% for the nine-week seasonal shopping season. Despite more than quadrupling e-commerce revenues, GameStop’s top line fell. Comps were up, but only because the company’s shop count had dropped 11% in the last year. Comps include e-commerce sales, which were spread across 11 percent fewer outlets this time.
Although it is GameStop’s peak earnings season, analyst projections for the report have been declining in recent months. Keep in mind that Wall Street overstated the chain’s bottom line in two of the prior three quarters if you think it’s excessively negative. There won’t be much to like in the report, with PS5 system sales being the only reason sales didn’t drop by double digits — and consoles being GameStop’s lowest-margin segment. GameStop will try to spin things by promising to shake things up, but a dose of financial reality on Wednesday and beyond could be harsh for the stock.
American Airlines is number two.
If I felt American Airlines was expensive a week ago when it was setting new 52-week highs, I’m even more certain now that it’s a stock to avoid after a 7% gain in the last five trading days. As we make progress on the COVID-19 situation, air carriers are rising, but the picture isn’t as bright elsewhere, with global cases rising again. It will take years for airlines to go back to normal, and American Airlines is one of the weakest players in the sector.
The startling statistic is that American Airlines now has an enterprise value of more than $50 billion as a result of taking on new debt and issuing more stock. The stock was trading a little higher at the start of last year than it is now. The 52-week highs it’s achieving today coincide with the start of the pandemic shutdown, with travel stocks plunging since late February of last year. There were no concerns about COVID-19, and the economy was growing. The enterprise value of American Airlines was $41.6 billion. Under what circumstances is American Airlines a better corporation now than it was in the months leading up to the pandemic’s global impact? I’m sure I’m not the only one who sees aviation fuel prices rising again.
Danimer Scientific is number three.
We live in a waste-filled world, and Danimer Scientific’s concept strikes all the right environmental notes. It creates a more effective mouse trap for the plastic bottles, straws, and bags that appear to stay in landfills and oceans indefinitely. Danimer’s oil-based polyhydroxyalkanoates (PHAs) are a plant-based material that decomposes more quickly than traditional polymers.
Danimer’s Nodax has attracted major companies, but will the environmental claims stand up? The Wall Street Journal published a critical story on biodegradable plastics over the weekend, citing various experts. They feel that Nodax’s favorable effects are exaggerated, if not outright false.
Danimer Scientific will be quick to present their side of the story. It will release its first quarterly earnings report as a public company on Monday. Danimer’s sales has increased by about 50% in the first nine months of 2020, and the company’s earnings report next week could reveal more of the same. Customers will not pay a premium for Nodax if its biodegradable claims start to disintegrate, therefore the issue now is to disprove the critics.
You won’t find safe stocks in GameStop, American Airlines, or Danimer Scientific this week if you’re looking for them.
This post is the author’s own view, which may differ from a Motley Fool premium advice service’s “official” recommendation position. We’re a mishmash! Questioning an investing theory, even our own, encourages us to think critically about investing and make decisions that will make us smarter, happier, and wealthier.
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