Wall Street has now moved higher for eight consecutive weeks, but not every stock is playing along. I thought my three stocks to avoid for last week — Steelcase, CarMax, and Lennar — were going to lose to the market. They rose 11%, climbed 2%, and fell 1%, respectively, for an average gain of 4% for the week.
The S&P 500 moved 0.8% higher, so I fell short. Thanks a lot, Steelcase. I have still been right in 70 of the past 113 weeks, or 62% of the time.
Let’s turn our attention to the new week. I see Alibaba Group (BABA 0.76%), Steelcase (SCS -0.58%), and JD.com (JD 0.07%) as stocks you might want to consider steering clear of this week. Let’s go over my near-term concerns with all three investments.
1. Alibaba
Last week ended badly for some investors in Chinese growth stocks. The country’s gaming regulator put out a draft of curbs on Friday that would crack down on the money and time that players spend on online games in China. The news saw some Chinese gaming specialists tumbling 10% or more.
Alibaba’s slide was limited to a 1% drop, but it’s not a Chinese online gaming company — it’s an e-commerce juggernaut. However, last week’s gaming-specific sell-off is another reminder of the dangers that U.S. investors face buying into Chinese growth stocks. I should know. (Plot twist: I own shares in Alibaba.)
Image source: Getty Images.
Alibaba isn’t the growth stock it was a few years ago. It has posted double-digit revenue growth just once in the past eight quarters. The stock is trading lower this year, the third down year in a row for a former market darling.
Why do I own a small piece of Alibaba? I can appreciate its dominant market position. The company also trades at a low earnings multiple.
I still think it’s a risky play in the final trading week of 2023. In a winning year, I can see investors looking to sell their losers to offset capital gains elsewhere. With Alibaba stock down 76% from its peak in 2020, there are a lot of investors underwater. It’s shaping up to be a weak holiday-abridged trading week for Chinese growth stocks.
2. Steelcase
The one company that burned me last week was Steelcase. The maker of stylish yet functional office furniture moved higher after posting mixed financial results. The bottom line came in ahead of expectations, but revenue clocked in at the low end of the 3% to 6% decline that it was targeting back in September.
The stock has now more than doubled in 2023, but you might be left scratching your head if you follow its sales numbers. This is the sixth quarter in a row of decelerating top-line gains, and the year-over-year comparisons are now negative.
- Q1 2023: 33%
- Q2 2023: 19%
- Q3 2023: 12
- Q4 2023: 7
- Q1 2024: 2
- Q2 2024: (1%)
- Q3 2024: (6%)
Steelcase has done a great job of improving its operating efficiency to deliver encouraging earnings, but that’s about it. The whole trend of companies calling employees back to in-office work is clearly not helping boost sales at Steelcase. The stock’s big year-to-date pop could keep some investors from selling this week to trigger a 2023 taxable event, but the recent gains don’t seem sustainable or warranted.
3. JD.com
Playing on the same theme as Alibaba, JD.com is another Chinese e-commerce player that could be a tempting stock to unload in 2023. If Alibaba’s 13% decline this year is rough, JD.com investors have seen the value of their positions cut in half.
JD.com has also seen its sales slow to a crawl, clocking in with single-digit percentage growth for four consecutive quarters. Recent reports showing slowing consumer spending in China also point to more near-term weakness. With any out-of-favor stock vulnerable to tax-loss selling this week, JD.com scratches off too many boxes to ignore.
The stock market is always on the move. If you’re looking for safe stocks, you aren’t likely to find them in Alibaba.com, Steelcase, and JD.com this week.
Rick Munarriz has positions in Alibaba Group. The Motley Fool has positions in and recommends CarMax, JD.com, and Lennar. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
