3 Stocks to Avoid This Week

This article was originally posted here

There's never a dull moment when it comes to investing, and some stocks are riskier than others. I have some near-term concerns with how the market will treat Stitch Fix (NASDAQ:SFIX), Norwegian Cruise Line (NASDAQ:NCLH), and Luckin Coffee (NASDAQ:LK) shares this week.

Stitch Fix reports potentially problematic quarterly results. Norwegian Cruise Line and Luckin Coffee pulled off what seems to be unsustainable rallies last week. Let's size up all three scenarios. A seated woman looking at the ground as a red arrow moves lower on the wall behind her.


Stitch Fix

Stitch Fix is a dynamic e-commerce company that uses data science-fueled stylists to deliver its personalized wardrobe selections to its growing customer base. It reports its fiscal third-quarter results shortly after Monday's market close. 

It's easy to be concerned here. Growth has slowed, with revenue climbing 22% in back-to-back quarters, and its guidance in early March was calling for further deceleration — eyeing top-line growth of 14% to 16% for the report it's about to announce. Investors hated the report, sending the stock 42% lower to the pre-teens in the three subsequent trading days. 

A lot has happened since then. The pandemic would go on to widen in scope, making it perfectly fine to just keep wearing those sweatpants around the home. You don't need new pants or shoes when your videoconference meeting is just a shot of you above the shoulders. A pair of Stitch Fix distribution centers had to temporarily close down, and by early April Stitch Fix withdrew its earlier guidance. 

Analysts now see revenue falling just short of the $408.9 million it served up for the same period a year earlier, and it could be even worse. A lot of analysts have yet to lower their targets in light of the new normal, and at least one Wall Street pro sees the top line breaking below $300 million. Stitch Fix even announced last week that it would be laying off 1,400 of its stylists in California, hiring back stylists in lower-cost markets. Apparel sales in general have been weak during the COVID-19 crisis.

The kicker here is that despite all of these headwinds shares of Stitch Fix have more than doubled from the initial post-earnings sell-off last time out. Revenue won't be growing 14% to 16% in Monday's report. The fundamentals have deteriorated as the stock has appreciated. This could be an accordion in a trash compactor, and that doesn't end pretty.

Norwegian Cruise Line

Last week was awesome for cruise line stock investors. The three publicly traded operators soared 34% to 43% — and Norwegian Cruise Line was leading the pack with the largest of the gains. The rub is that the industry isn't necessarily in better shape than it was a week ago. 

Cruise lines are still grounded until at least early August. There are 60,000 crew members still aboard the industry's cruise ships waiting to be repatriated to their home countries. With COVID-19 cases climbing again in Norwegian Cruise Line's home state of Florida, the travel market likely slow to come around, and Norwegian itself as the smaller player given the possibility of a shakeout, it wouldn't be a surprise to see some kind of retreat in the current climate.

Luckin Coffee

Shares of the once promising Chinese coffee-brewing chain were halted for more than a month after conceding that it was cooking the books. The stock naturally tanked after trading resumed in mid-May, but this past week it soared past the price it was when it was halted.

There is no positive news out of Luckin's camp to justify the 36% pop the shares experienced on Friday. We still don't have actual financials, even though we know that most of its sales in 2019 were fabricated. Luckin Coffee as a concept continues to operate in China, so it's not as if the shares are worthless. However, with a lot of dark clouds remaining — and the inherent risk these days of buying into Chinese stocks — it's hard to justify last week's enthusiasm for an investment that has now more than quadrupled off of its May 22 bottom.  

Editor's Note: Investing legend says buy TaaS Now

Hi, Whitney Tilson here.

I made my mark on Wall Street over the past 20 years by starting my first hedge fund with just $1 million… which I ultimately grew into a series of funds worth more than 200 times that amount.

Along the way I met Presidents Clinton and Obama… have been asked to speak at the most prestigious business schools (like Harvard, Columbia, and Wharton)… and was fortunate to identify some of the best investments in the world, in the very early stages, including…

  • Netflix when it was $7.78 a share (today it’s worth 4,800% more)
  • Apple at $1.42 (it’s up 18,000% since then)
  • Amazon at $48 (it’s up 4,000% since then)

I’m writing today because my team and I have found what we believe will be the next big tech trend that will make investors rich.

It’s called TaaS—and if you haven’t yet heard of this technological breakthrough, you soon will.

Over the next few years, TaaS will change the way you eat, shop, work, and travel. It will change the value of our homes and where we live. It will radically alter prices for airline and train tickets, gas, and even household goods. It could even help slow the spread of the coronavirus… and help get the American economy moving again.

Along the way, it could make you a small fortune.

Look, this is going to be the biggest trend affecting you and your money over the next few years—yet most Americans don’t have a clue.

And that’s why I’m going public today with the full story. Prior to the coronavirus, I traveled around America and the world for months (more than a dozen trips in the past six months), talking to every expert I could find.

I’ve put everything you need to know in a simple presentation, where you’ll even learn the name and stock symbol of my favorite TaaS investment in the world today.

No subscription, e-mail address, or credit card required.

You can watch or read my presentation for free right now. We’ve posted it on my research firm’s website, right here

Best regards,

Whitney Tilson
CEO and Founder, Empire Financial Research

P.S. It’s not all good news, however. TaaS is going to cause a lot of people to lose money too. Dozens of well-known businesses will go bankrupt. But the truth is, the positive effects of this radical development far outweigh the negatives. Get the facts for yourself. Make sure you’re not on the wrong side of this trend. Click here to see my brand-new analysis