Three Stocks to Avoid for the Week of September 12th

Seeking out great stocks to buy is important, but many would say it’s even more essential to know which stocks to steer clear of. A losing stock can eat away at your precious long-term returns. So, determining which stocks to trim or eliminate is essential for proper portfolio maintenance.  

Even the best gardens need pruning, and our team has spotted a few stocks that seem like prime candidates for selling or avoiding. Continue reading to find out which three stocks our team is staying away from this week. 

Lyft (LYFT) shares rallied nearly 17% on Friday to close at $17.17 on rumors about a potential buyout that have not been substantiated, appearing only on Twitter and StockTwits.  General Motors (GM), DoorDash (DASH), and Ford (F) are suspected to be the buyers. If you didn’t own LYFT before the rumor-induced surge, we recommend holding off for now. Anyone who strikes up a position here could be sorely disappointed if the rumors turn out false.  

Even if the buyout rumors are true, the enthusiasm seems overdone, considering Lyft’s better-equipped competitor Uber (UBER), is snapping up market share in the space, leaving the pure-play rideshare company only scraps.  

Despite last week’s uptick, LYFT’s share price is 60% lower this year. Bof A analyst Michael McGovern recently initiated coverage of LYFT with an underperform rating and a $14 price target, noting that  Uber management said that their U.S. Mobility market share was “at or near a multi-year high” in the second quarter. In the near term, the analyst expects Lyft’s smaller scale to create “unique challenges in its post-pandemic recovery,” including share losses.

In its November Q3 call, the company is expected to post quarterly earnings of $0.07 per share in its upcoming report, representing a year-over-year change of +40%. Revenues are expected to be $1.05 billion, up 21.9% from the year-ago quarter.

Struggling high-end retailer Vera Bradley (VRA) reported lower than expected quarterly results last week and lowered 2023 guidance in the face of inflationary and recessionary pressures. The company reported Q2 EPS of $0.08, versus $0.28 from the same period last year. Revenue came in at $130.4 million, missing consensus expectations of $132.51 million.

This isn’t the first rotten quarter for VRA. The designer of high-end handbags, apparel, and luggage has been struggling for some time, missing the consensus mark for earnings and revenue for six of the past seven quarters. According to management, investors should not expect to see a shift anytime soon. Management sees full-year revenue of $480 – $490 million, less than the $497.56 million that Wall Street expects, indicaticating the pros could be overestimating the company’s recent performance.  

VRA sees 2023 EPS in the ballpark of $0.20 – $0.28, representing a decline of 50% or more from the same period last year’s EPS of $0.57.   “We expect the challenging macroeconomic environment to continue for the balance of the year and anticipate it will take additional time to return the Pura Vida e-commerce business to growth, high gas prices and other inflationary pressures will continue to impact the Vera Bradley factory channel, and there will be continued pressure on gross margin. Therefore, we believe it is appropriate to further adjust our outlook for the fiscal year,” CEO Rob Walstrom commented.   

Amid rising competition in the streaming business, Netflix (NFLX) lost nearly a million subscribers in the first half of 2022, as global giants Walt Disney (DIS) and Amazon (AMZN) stepped up their game taking significant market share. Despite surging in the past quarter, Netflix is still the worst-performing stock in the FAANG group, with a loss of more than 62%. 

CEO Reed Hastings had originally positioned the company as an ad-free alternative to cable. However, given the current headwinds, the CEO now says commercials are necessary to appeal to those who find the ad-free service too expensive. Netflix has increased prices several times and is now one of the most expensive streaming services. The ad-free business is also growing in competitiveness as Disney plans to launch a similar enterprise on Dec. 8. 

Needham analyst Laura Martin recently suggested investors remain on the sidelines as it’s not yet clear how Netflix will perform amid rising competition. “Where do its sub losses end, given the strong competition from newer, lower-priced, deeper-pocketed streaming services? 222mm global subs may turn out to be the peak subscribers for NFLX,” said the analyst. NFLX’s share price is down 61% for the past 12 months.