Wall Street moved nicely higher last week. I thought my three stocks to avoid for that week -- Altria , Affirm , and Tilly's -- were going to lose to the market. They rose 1%, 23%, and 5%, respectively; an average gain of 9.7% for the week.
The S&P 500 moved 2.5% higher. So I was wrong. But I've still been right in 61 of the past 97 weeks, or 63% of the time.
Let's turn our attention to the current week. I see Nvidia(NASDAQ: NVDA), Affirm(NASDAQ: AFRM), and American Eagle Outfitters (NYSE: AEO) as stocks you might want to consider steering clear of this week. Let's go over my near-term concerns with all three investments.
The bigger they are, the harder they fall. Nvidia has been one of this year's biggest winners. The stock is up 232% so far in 2023, more than tripling despite serving up some relatively ho-hum results. Revenue rose just 10% over the past 12 months, and that follows flat top-line growth in the last fiscal year.
There's naturally a lot more to Nvidia than its trailing growth. Nvidia is the leading player when it comes to graphics processing units (GPUs), but it has also emerged as a market fave for investors hoping to cash in on the artificial intelligence revolution. The future is stronger than the past, and that includes its latest quarter as revenue more than doubled and earnings per share soared more than fivefold.
Analysts see Nvidia's revenue surging 103% this fiscal year with earnings per share more than tripling. Bears argue that Nvidia's valuation is outrageous, but that's the view from the rearview mirror. Nvidia is trading for just 45 times this fiscal year's projected earnings and 29 times next year's multiple.
If this still seems like a bullish pitch for Nvidia, let's go back to the first part. Nvidia is the largest stock to more than triple this year. Its $1.2 billion market cap shadows the second-largest stock to triple with its $80 billion market cap. It has become the top AI investing play, and after back-to-back weeks of healthy gains the market is susceptible to a pullback. The stock's one-year beta of 1.62 translates into Nvidia being more volatile than the overall market. If the market slips in this holiday-abridged trading week, it's fair to say that Nvidia could take a bigger hit than the general market.
Affirm has done something that you don't see very often. The stock soared 23% two weeks ago. It popped another 23% last week. A better-than-expected financial report helped fuel the stock's initial jump. Some upbeat analyst notes and short covering helped keep the rally going last week.
This is as good a time as any for a breather. It had a strong "beat and raise" report two weeks ago, but challenges remain for the "buy-now, pay-later" (BNPL) industry. Rates remain stubbornly high, and there are real risks to the Affirm model in the current climate. Analysts don't see Affirm turning an annual profit until at least 2027, so it's not as if time is on its side.
3. American Eagle Outfitters
American Eagle Outfitters hit a fresh 52-week high on Friday. Why? The specialty apparel retailer reports quarterly results on Wednesday, and four weeks ago it offered a rosy financial update. But shoppers aren't necessarily flocking back to American Eagle. The chain's early August update called for flat revenue growth for the fiscal second quarter that it will discuss this week. The good news is that it was initially targeting its top line to decline in the low-single digits.
American Eagle also expects its operating profit to exceed the $25 million to $35 million that it was previously forecasting. This is obviously an encouraging update, but check the chart. American Eagle rose 3% the day it announced that it would go on to top its earlier guidance, a reasonable bounce. It has gone on to pop another 17% in the four subsequent weeks. The stock has discounted a blowout performance. Is flat revenue growth worth this kind of helium? Some retailers are seeing weakness as customers prioritize low-margin essentials as purchases. American Eagle will have a lot to prove this week.
The stock market is always on the move. If you're looking for safe stocks, you aren't likely to find them in Altria, Affirm, and American Eagle Outfitters this week.
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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends American Eagle Outfitters. The Motley Fool has a disclosure policy.