It was another down week for the market, and the same can be said for my three stocks to avoid. The three names I thought were worried about a bruise last week — Bakkt Holdings, Hilton Worldwide Holdingsand Platoon Group – were down 29%, up 1%, and down 15%, respectively, with an average decline of 14.3%.
It’s been a tough week on Wall Street. the S&P500 fell 1.6% for the week, so I won easily again this week. The S&P 500 has now outperformed my bear picks — meaning I’ve beaten the market, as these are stocks I suggest investors avoid — in 16 of the past 18 weeks. What stocks give me the heebie-jeebies now? This week I see Vipshop Holdings (NYSE: VIPS), Exact Sciences (NASDAQ:EXAS)and Reserve credits (NASDAQ: BKNG) as stocks you might want to consider walking away from. Let’s review my short-term concerns.
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Exact Sciences is one of the companies reporting new financial results this week without a holiday. It ticks a lot of the red flags that tend to worry me ahead of a new earnings report. Analysts aren’t holding much, bracing for another big deficit on a 4% drop in year-over-year revenue. Analyst estimates have also fallen slightly in recent weeks. Wall Street pros were modeling a loss of $0.83 per share just a month ago. Now they’re perched at $1.04 per share in red ink.
Worse still, Exact Sciences posted a bigger loss than analysts had expected in back-to-back reports. The important counter here is that Exact Sciences is not your typical business. It’s a maker of cancer diagnostic tools, and like most next-gen medical stocks, it often trades on more than just its short-term performance as a company. Exact Sciences manufactures important products including the Cologuard home colon cancer screening tester and the CancerSEEK multi-cancer test. It’s bad form to bet against a company with good intentions, and there may be good news to lift the stock when it reports on Wednesday. Stocks also fell 41% last year, so much of the pessimism is already embedded in the stock.
Another potentially problematic earnings report this week may come from Vipshop Holdings in China. The online clothing and accessories discounter joined Exact Sciences in its report on Wednesday.
Several years ago, Vipshop was a growth darling. The stock more than doubled for three consecutive years between 2012 and 2014. Selling name brand products at closing prices was a timeless argument, but things are different in the world’s most populous nation these days. The “common prosperity” movement weighs on the appeal of wearing brands in public, even if the clothes have been obtained at a great price.
Growth is expected to decelerate sharply for the third consecutive quarter. Analysts see a mere 1% year-over-year advance on the top line in Wednesday’s report. Margins have also shrunk and Vipshop is expected to earn just over half of what it did a year ago. Like Exact Sciences, Vipshop Holdings has missed analysts’ targets in consecutive reports. Unlike Exact Sciences, short-term growth performance is paramount for this forward-thinking flash sale specialist. Vipshop traded as high as $46 in March last year. It could trade in single digits by the end of this week.
Travel stocks are hot these days. At least five major hotel chains and a pair of theme park operators have hit new heights in 52 weeks. We also had Priceline.com’s parent company, Booking Holdings, hit a record high on Wednesday. This is a surprising feat since Booking’s business is far from what it was before the pandemic began. Rolling earnings are 39% below their 2019 peak, and it’s not like business was that good back then either.
Revenue grew less than 4% in 2019, long before restrictions on leisure travel kicked in and business travel got sick. There’s a lot to like about Booking Holdings as the premier online travel portal operator. It has many properties that will thrive at the right time. It doesn’t seem like the right time, especially when so many companies reaching peak revenue levels are trading at such deep discounts.
If you’re looking for safe stocks, you probably won’t find them in Exact Sciences, Vipshop Holdings and Booking Holdings this week.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging 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 wealthier.