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3 Stocks to Avoid This Week

Stocks move up and down, and I've made it a habit of kicking off each new trading week with some investments that I think will be vulnerable in the year ahead. My three stocks to avoid last week were on the move -- down 15%, up 5%, and down 20% -- averaging out to an 10% decline.

The S&P 500 declined 0.3% for the week, so I was the relative winner with my bearish calls again. This week I see Despegar (NYSE: DESP), Digital World Acquisition (NASDAQ: DWAC), and iQiyi (NASDAQ: IQ) as stocks that you may want to consider steering clear from this week. Let's go over my reasons for the near-term pessimism.

Image source: Getty Images.

Despegar.com

We're wrapping up what has been a turbulent earnings season, and -- speaking of turbulence -- Latin American travel portal Despegar.com is reporting financial results on Wednesday morning. There was a time when Argentina's Despegar, Spanish for "to take off," was destined to live up to its moniker. Reality hasn't been as kind.

Despegar's flight has been grounded lately, and we're not just talking about the pandemic-related slowdown in travel. Revenue rose a mere 1% in 2018, declining a year later. Then business cratered in 2020, plummeting 75% last year in the wake of the pandemic.

The year-over-year comparisons are going to be kind for Wednesday's third-quarter update, but that follows last year's depressed showing, when the travel industry was in a holding pattern. The $74.9 million analysts see Despegar generating in revenue for the quarter that ended in September would be 43% below where it landed for the same quarter two years ago.

The news isn't likely to be any better on the bottom line. Analysts see Despegar's quarterly loss clocking in a lot lower than it did a year earlier, but the online travel specialist has also posted larger-than-expected deficits in each of its past four quarterly reports.

Digital World Acquisition

The one bearish call that didn't go my way last week was Digital World Acquisition, a special purpose acquisition company (SPAC) that took off last month after announcing a combination with Trump Media & Technology Group's social media platform, Trust Social.

The shares moved 5% higher after double-digit declines in back-to-back weeks. Volume has thinned out relative to its mid-October peak, but the SPAC is still trading at a huge premium to its investing firepower. There's power in polarization, but this isn't a political call. Only a handful of SPACs have been able to sustain the euphoria once their acquisition targets have been announced.

iQiyi

Like Despegar, iQIYI is a deficit-saddled international company that's reporting quarterly results on Wednesday. Unlike Despegar, iQiyi has actually posted smaller-than-projected losses over the past year. This would be a comforting omen for the streaming video entertainment leader in China, but its business model is showing some cracks that need addressing.

Growth has decelerated sharply every year since iQiyi went public in 2018. Revenue posted a year-over-year increase of just 3% in its latest quarter. Its earlier guidance calls for 6% to 12% improvement for the quarter it will discuss this week, but its base of paid subscribers has stagnated over the past two years. A recovery in ad revenue has helped, but the market won't have full confidence in the iQiyi model until it starts growing its paying customer counts again. The stock moved 12% higher last week, but that only means expectations are possibly too high heading into this critical week for iQiyi.

If you're looking for safe stocks, you aren't likely to find them in Despegar.com, Digital World Acquisition, and iQiyi 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 Despegar. The Motley Fool recommends iQiyi. The Motley Fool has a disclosure policy.


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