I took a look at three stocks to avoid last week, and that basket of short-term calls was an absolute success — but a failure on an absolute basis. The three stocks rose by an average of 3.7%, as a 10% decline in one of the three calls was more than offset by gains elsewhere. The market's overall 4.1% gain was better, but let's see if I can fare better with this week's edition.
I see Genius Brands (NASDAQ:GNUS), Carnival Corp. (NYSE:CCL), and XpresSpa (NASDAQ:XSPA) as vulnerable investments in the near term. Let's see why I think these are three stocks to avoid this week.
IMAGE SOURCE: GETTY IMAGES.
Everybody wants to be a genius, but figuring out what was an unsustainable spike in Genius Brands stock last month isn't rocket science. A thin float for a tiny media company can swing wildly as it announces new streaming and product deals, and that's what briefly catapulted this penny stock into the double digits in early June.
The stock surged again on Thursday — soaring 54% on the final trading day of the week — after Genius Brands announced that it would host a conference call to discuss an “exciting business development” on Monday morning. Genius Brands may very well have some “exciting” news to unveil a half-hour into the trading day, but we all know how the “buy on the rumor, sell on the news” trading mindset plays out. In a highly competitive world for kid-oriented content, even a star-studded project is a long shot to recoup its costs.
The world's largest cruise line operator will step up with a financial update on Friday. It has scheduled a conference call with analysts in the morning, promising a business update. It has historically posted its full second-quarter results in late June, but no one is holding out for encouraging news over the past three months, with revenue-generating passenger cruises on hiatus.
The near-term outlook isn't any kinder. Carnival has pushed out future sailings until October, and it wouldn't be a surprise if that resumption date gets moved again. Cruising is expected to be the last segment of the travel industry to recover, and it makes the occasion of any financial update a potentially thorny time to be holding a cruise line stock.
If someone had to dream up one of the worst business models for the current climate, it's not a stretch that it would be a spa operator — at an airport. XpresSpa offers spa services at 50 locations across 25 airports, and that's not going to be a hot niche right now. A hands-on service involving close contact in tight quarters is a dicey proposition these days, and airport traffic itself has fallen sharply worldwide. Fewer flights also translate into less congestion in the airwaves, eating away at the terminal delays that often inspire spa services as an impulse purchase when someone suddenly has a couple of hours to kill. XpresSpa also sells neck pillows along with other health and wellness products for travelers, a retailing niche that's less problematic than its actual suite of spa services but still an issue in largely barren airports.
XpresSpa has tried to pivot. It's opening COVID-19 and antibody testing sites within airports, and that alone sparked a short-lived boost. Last month it took advantage of the speculative surge in its stock to offer 7.6 million new shares in a registered direct offering. However, it remains to be seen why a historically profitless company will have any operational advantage in what should be a crowded and perhaps temporary niche.
If you're looking for safe stocks, you won't find them in Genius Brands, Carnival, and XpresSpa this week.
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