Every Friday, Canada’s national paper, The Globe and Mail, has a weekly look at some of the stars and dogs from the past week. These are stocks to watch, for good and bad reasons, over the next few weeks.
Winners in its most recent version from May 8 include Activision Blizzard (NASDAQ:ATVI), Peloton Interactive (NASDAQ:PTON) and Shopify (NYSE:SHOP). The Globe decided to go with nothing but stars this past week.
Based on the S&P 500, which was up 3.5% over the past five trading days between May 4 and May 8, here are 10 stocks from the last week that either outperformed or underperformed the index.
Each of the stocks on the list has a market capitalization of $10 billion or higher.
- Wayfair (NYSE:W)
- DraftKings (NASDAQ:DKNG)
- Twilio (NYSE:TWLO)
- Clorox (NYSE:CLX)
- Square (NYSE:SQ)
- Zoom Video (NASDAQ:ZM)
- Ford (NYSE:F)
- Sysco (NYSE:SYY)
- General Electric (NYSE:GE)
- Dow (NYSE:DOW)
Winning Stocks to Watch: Wayfair (W)
5-Day Performance: 53.5%
If there is a stock that suggests the markets might be ready to deliver another correction in 2020, it would have to be Wayfair. Year-to-date it’s up a whopping 108%.
Investors are smitten with the online furniture retailer. The novel coronavirus will do that to you. Alas, the Covid-19 momentum won’t last. Eventually, investors will figure out Wayfair is still the same money-losing operation it has always been.
In the first quarter, it grew sales by 19.8% to $2.3 billion. That’s good news. The bad news is that for every dollar of sales, it lost 11 cents from its operations.
The big move prompted Stifel analyst Scott Devitt to downgrade Wayfair from “hold” to “sell.”
“We believe Wayfair shares have moved too far too fast in response to the recent impressive acceleration and downgrade the shares to Sell,” Devitt wrote in a note to clients.
In the first quarter last year, Wayfair spent $244 million on advertising to generate $1.9 billion in sales (13 cents per dollar of sales) compared to $276 million in Q1 2020 (12 cents per dollar of sales).
It still spends too much on advertising. If the Covid-19 surge doesn’t last, you can be sure the operating loss will mushroom.
Enjoy the good times while they last, because they never do.
DraftKings (DKNG)
5-Day Performance: 16.6%
Of all the positive performances this past week, DraftKings continues to puzzle me. Up 120% year to date, it’s not that I don’t get the investing rationale behind its business (legal sports betting in eight U.S. states), it’s just that there aren’t any sports to bet on at the moment.
The company’s pro forma revenue as of the end of December was $432 million with an operating loss of $148 million. Since most pro sports have been idle since mid-March, that suggests that first-quarter results will be significantly lower.
Long term, there’s no question this business has the legs to make shareholders a bunch of money, but before that can happen, the sports world needs to get back on the field. For the most part, that won’t happen until at least June or July.
There’s a good chance you’ll be able to pick up DKNG stock for less than $20 in the near future.
Twilio (TWLO)
5-Day Performance: 66.4%
Talk about a wild year for the cloud-based communications platform. It started the year around $100, fell to the high-$60 range and now trades around $180, thanks in part to its performance of the past week.
The last time I wrote about TWLO stock was shortly after it delivered its fourth-quarter results. While the numbers were good, its outlook for 2020 profits was less than investors were expecting.
I reasoned that the investments it was making that would hurt profitability in the short-term would pay big dividends in the long-term vis a vis market share.
“I’d bet my last dollar that hedge funds owning Twilio were buyers of its stock in the days following the release of the company’s third-quarter and fourth-quarter results. On the other hand, the weak hands were likely selling,” I wrote on Feb. 24.
“The concern about profitability is way overblown, and more importantly, utterly misguided, given the potential market share ahead of it.”
If that’s not enough, the fact Amazon (NASDAQ:AMZN) owns 7.3% of its stock should be enough to keep shareholders happy while it continues to scale its business and forego profit.
Clorox (CLX)
5-Day Performance: 5.9%
Back in July 2018, I wondered whether Clorox was a better buy than Church & Dwight (NYSE:CHD). I concluded that CHD stock was the better buy. I’d long been infatuated with the maker of Arm & Hammer baking soda and Trojan condoms — especially the stock’s consistency.
Since then, Clorox stock is up 49%, 16 percentage points better than Church & Dwight. Over the past 10 years, the two stocks have traded places on several occasions. They’re both excellent stocks to own in good times and bad.
However, with the coronavirus in full attack, the company’s disinfectant wipes and bleach are in the minds of most investors at the moment.
“Clearly there’s an unprecedented demand spike for some of our products, in particular wipes. We’ve seen spikes of up to 500% in terms of demand and no supply chain in our industry is built to satisfy that demand increase in a short period of time,” CEO Benno Dorer stated recently.
So far in 2020, Clorox is easily outpacing CHD, up 33% compared to 4.3%. If you’re looking for the hot hand, right now it’s definitely Clorox.
Square (SQ)
5-Day Performance: 20.7%
Thanks to Square’s performance over the past week, the payment processor has jumped into positive territory for the year, up 22%. That’s a tad less than its 3-year annualized total return of 57%. But, hey, that’s growth stocks for you. They can’t always move higher.
InvestorPlace‘s Larry Ramer isn’t optimistic about the company’s results. He feels the coronavirus will put a serious wrench in its growth plans.
“Square has very high exposure to the brick-and-mortar sales of small businesses, so its Q2 results are likely to be dismal. Yet its shares are little changed this year, and they’re still trading at a rather high forward price-earnings ratio of 100,” Ramer wrote on May 5.
Although Square reported an adjusted loss per share of 2 cents in the quarter, well below its Q1 2019 profit of 11 cents, shares surged 11% in May 7 trading. The reason: It set a monthly record of net-new transacting active customers in March due to fundraising initiatives as well as people receiving their stimulus checks directly through Cash App.
While I don’t disagree with Ramer that the company’s exposure to brick-and-mortar small businesses should hurt future results, the long-term potential of its products and services remains intact. That’s especially true for Square’s Cash App, which is continuing to gain customers during Covid-19.
I have no idea whether SQ stock gives back the gains in the next week. What I do know is that it’s a great fintech investment to hold for 3-5 years and beyond.
Zoom Video Communications (ZM)
5-Day Performance: 12.2%
In May 2019, I selected Zoom Video Communications as one of seven stocks to buy from the Renaissance IPO ETF (NYSEARCA:IPO). At the time, I didn’t know much about the video conferencing company. Now I’m inundated by friends and family wanting to do a Zoom call.
It’s become the generic name for video calling. You know, like Kraft Heinz (NASDAQ:KHC) is to ketchup, Xerox (NYSE:XRX) is to photocopying and Johnson & Johnson (NYSE:JNJ) is to band-aids.
Since then, ZM stock is up 80%. It’s even more mind-blowing on a year-to-date basis, up 130%. So, a bit of a comedown was only natural. And, of course, the chatter about competition continues to heat up.
“Remember, as a public company, Zoom is in its infancy. It was founded in 2011 but just went public a year ago, and arguably was not ready for the massive influx of business that came its way when the novel coronavirus hit,” InvestorPlace’s Patrick Sanders wrote May 4.
“Most notably, it had security concerns and privacy concerns. Hackers have had a field day breaking into meetings and disrupting them with threats, racist messages and homophobic remarks.”
When you become this popular it’s only natural that you get a target on your back. Long term, I like this stock, but volatility will remain in 2021.
Ford (F)
5-Day Performance: 6.5%
How low can Ford stock go has become the car company’s battle cry. It’s gotten so bad that the press is writing about big stock buys from CFO Jim Farley.
“Ford Motor Co.’s $2 billion loss in the first quarter is no deterrent to its COO Jim Farley,” the Detroit Free Press reported May 4.
“Farley, 57, paid about $1 million to buy 194,950 shares of Ford stock Thursday at about $5.13 a share, Ford said in documents filed with the Securities and Exchange Commission on Monday. Farley now owns 828,922 Ford shares.”
According to the company, Farley’s purchase was the second-largest in the past decade. The purchase so excited InvestorPlace contributor Faisal Humayun that he proclaimed May 6 that F stock had indeed bottomed.
I admire my colleague’s confidence. I have no such faith in Ford.
Losing Stocks to Watch: Sysco (SYY)
5-Day Performance: 1.0%
Sysco reported Q3 2020 results on May 5 before the markets opened. The food distributor saw sales decline by 6.5% in the quarter with a whopping 88.6% decrease in its operating profit. Its adjusted earnings per share of 45 cents missed analysts’ estimate by 17 cents. That was enough to send SYY stock down by more than 6% on the day.
If you own Sysco, the good news is that its business improved in April and it expects more of the same in May.
“From the low point at the end of March, trends in April have shown sequential weekly improvement that reflects further momentum and upward trajectory,” Sysco said in a statement. “We expect additional improvement throughout the month of May as certain states allow restaurants to re-open their dining areas.”
One thing to keep an eye on is the company’s debt load. To protect its operations through the coronavirus, it recently added approximately $6.6 billion to its existing long-term debt of $8.9 billion at the end of December.
If this mess doesn’t improve soon, that extra debt could sink it.
General Electric (GE)
5-Day Performance: -3.2%
At the Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) annual meeting May 2, Warren Buffett discussed the issues facing the airline industry, including the idea that there are too many planes chasing too few customers.
Berkshire Hathaway’s Precision Castparts division makes aircraft components. It’s likely to face a tough couple of years. General Electric is in the same exact boat. Only, GE isn’t funded by a company with $135 billion in idle cash.
“[T]he real question is whether you need a lot of new planes or not. And when you’re likely to need them,” Buffett said at the virtual annual meeting. “And it affects a lot of people, and it certainly affects Precision Castparts. It affects General Electric.”
In mid-February, GE stock hit a 52-week high of $13.26. Unfortunately, the fact that the aviation business is likely to see permanent job cuts in 2020 — as high as 13,000 — is a major headwind for the company.
It could retest its 52-week low of $5.90 any day now.
Dow (DOW)
5-Day Performance: -1.2%
The chemical company reported first-quarter results on April 30. They weren’t dreadful.
On the top line, it had sales of $9.8 billion, 11% lower than a year earlier. Analysts were expecting just $9.58 billion, so it exceeded expectations. On the bottom line, however, it missed the 60 cent consensus by a penny.
Dow’s total return year to date is a loss of 38%. Given chemical companies tend to suffer in economic slowdowns, the fall in its stock price seems somewhat warranted, but that said, the extent of its decline seems extreme.
On May 5, UBS downgraded Dow stock from buy to neutral with a $32 price target, down from $37 previously. Trading at $32, UBS believes it’s got little appreciation potential.
I would disagree.
In the first quarter, Dow’s free cash flow increased by 40% to $841 million. Over the trailing 12 months, it had free cash flow of $3.9 billion for an FCF yield of 9.4% based on a $41.3 billion enterprise value.
If you’re a value investor, this past week’s 7% decline was an added bonus.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
