Wall Street kept moving higher last week. I thought my three stocks to avoid for that week — Sea Limited, Warner Music Group, and Unity Software — were going to lose to the market. They fell 17%, dropped 3%, and rose 8%, respectively, for an average decline of 4% for the week.
The S&P 500 rose 2.2% higher, so I was right. I have been correct in 68 of the past 108 weeks, or 63% of the time.
Let’s turn our attention to the new week. I see Analog Devices (NASDAQ: ADI), Nvidia (NASDAQ: NVDA), and Unity Software (NYSE: U) as stocks you might want to consider steering clear of this week. Let’s go over my near-term concerns with all three investments.
It’s going to be a light week for earnings, given the time of year and the Thanksgiving-abridged trading week. Analog Devices is one of the larger companies reporting fresh financials this week. It might not be pretty for the tech bellwether with an $91 billion market cap when it reports on Tuesday morning.
The stock checks off many of the boxes that investors don’t like to see heading into a telltale update. It fell short of analyst revenue and profit targets last time out. Analog Devices has also declined after announcing disappointing quarterly guidance in back-to-back reports. Wall Street profit forecasts have been inching lower in recent weeks, particularly for fiscal 2024.
The semiconductor specialist warned in May that business would slow in the second half of fiscal 2023 given weaker economic demand and a more normalized supply environment. Reality has been even more unkind. Analysts see revenue plummeting 17% to $2.7 billion for the fiscal fourth quarter. Net income is expected to take an even bigger 27% hit, clocking in at $2 a share.
There is one silver lining for bulls. Morgan Stanley upgraded the stock to a bullish overweight rating on Thursday, lifting its price target in the process. It’s an encouraging sign when a Wall Street pro turn bullish just ahead of a telltale report, but it doesn’t mean that the worst is over for Analog Digital.
I mentioned that Analog Digital is one of the largest companies reporting in this otherwise quiet week, but Nvidia is the largest. It’s the fifth-largest exchange-listed stock in the country, and it’s the only one that hasn’t reported yet this earnings season (as its fiscal third quarter came to a close at the end of October).
Nvidia stock has more than tripled this year, fueled by its market leadership in artificial intelligence (AI) chips that just keep improving. Revenue will nearly double this fiscal year that ends in December with earnings per share soaring roughly threefold. However, there are signs that Nvidia could be mortal this week when it delivers its financial update on Tuesday afternoon. Analysts have been paring back their profit models for the fiscal third quarter, the now current quarter, and the new fiscal year that starts in February. Nvidia will need a perfect report this week.
Unity Software was the one stock on last week’s list that moved higher. It’s staying on for an encore performance this time. The game-engine developer has seen its stock soar 16% in the six trading days since posting rough quarterly results. Revenue clocked in weaker than expected, and Unity chose to suspend its near-term guidance.
It’s not a good look. A short squeeze has likely sent the shares higher. With long-term growth concerns and its decision to quickly backtrack on a new fee for developers limiting its near-term upside this doesn’t feel like a sustainable rally.
The stock market is always on the move. If you’re looking for safe stocks, you aren’t likely to find them in Sea Limited, Warner Music Group, and Unity this week.
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