Markets

3 Stocks to Avoid This Week

I took a look at three stocks to avoid last week, and I got smoked. For the second time in a row, the stocks I chose to steer clear of collectively moved higher. I needed that. I was starting to get cocky after coming out ahead in each of the nine previous weeks. Two of the stocks did move slightly lower for the week, but a 24% pop in the other did me in. The average stock to avoid gained 5.7% higher during the week, blowing past the market's 0.7% increase.

I'm at it again this week. I see Workhorse Group (NASDAQ: WKHS), Chico's FAS (NYSE: CHS), and Tesla Motors (NASDAQ: TSLA) as vulnerable investments in the near term. Here's why I think these are three stocks to avoid this week. A guy on a small boat being circled by two large sharks.

Image source: Getty Images.

Workhorse Group

Investors and speculators are getting a charge out of electric vehicle stocks, and for a wild moment in mid-June it was Workhorse Group's time to shine. The maker of electric commercial vehicles saw its stock roughly quadruple in the latter half of June, following a pair of bullish Wall Street notes.

One of the bullish analyst updates was from Gregory Lewis at BTIG, doubling his price target to $10. However, by early July the stock had gone from less than $5 in mid-June to more than $20. Lewis would boost his price goal again, but at that point he's just chasing the hot stock.

Workhorse has some early mover advantages when it comes to electric delivery trucks, but this market is about to get pretty crowded. Workhorse generated a loss of $133 million in its latest quarter on revenue of just $92,000. That's not a typo. The future could be bright for Workhorse Group in what is clearly a niche with heady upside, but the expectations are already too high for a small company with a nearly $1.7 billion market cap.    

Chico's FAS

I'm not a fan of kicking a company when it's down, but among the dozens of companies reporting fresh financials this week Chico's FAS appears to be one of the more vulnerable. The retailer behind the White House Black Market, Soma, and namesake mall concepts is struggling. 

Apparel has been among the hardest hit merchandise industries in the pandemic, and that's not a surprise, with little reason to get dressed up with new duds these days. A lot of retailers won't survive the crisis, and the bad news for Chico's FAS is that it was a laggard even when the economy was humming along nicely. This will be the sixth consecutive fiscal year that sales decline for Chico's FAS. 

There is little reason to expect anything positive in its fiscal second-quarter report on Wednesday morning. It has cut costs, but it's not going to be enough. Chico's FAS began a phased reopening of its stores in early May, but if customers weren't shopping there before, why will they start doing so now? Chico's FAS shouldn't have rejected the buyout offer it received last summer. It would've spared its shareholders a lot of hurt. 

Tesla Motors

The one stock I got wrong last week was Telsa Motors. I figured the previous week's spike after declaring a stock split would die down, but I was wrong. The maker of aspirational electric cars soared 24% and in the process enters this new trading week as the tenth most valuable U.S.-listed company by market cap. 

Tesla the company is doing some great things, but I don't believe there are only nine publicly trading companies that are more valuable. The stock split won't go into effect until the end of the month, but that's a zero-sum game for a stock that has popped eightfold over the past year despite a mere 3% increase in trailing revenue. Tesla deserves a market premium for many reasons, but these recent gains it has yet to earn. 

If you're looking for safe stocks, you aren't likely to find them in Workhorse Group, Chico's FAS, or Tesla Motors this week. 

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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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