Wall Street keeps inching higher. I thought my three stocks to avoid for last week -- Warner Bros. Discovery, Ambarella, and Big Lots -- were going to lose to the market. They rose 4%, 5%, and a whopping 54%, respectively, for an average gain of 21% for the week.
The S&P 500 rose 0.8% higher, so I was wrong. I have still been right in 69 of the past 110 weeks, or 63% of the time.
Let's turn our attention to the new week. I see Dollar General(NYSE: DG), Thor Industries(NYSE: THO), and Big Lots (NYSE: BIG) 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. Dollar General
It may seem odd to single out Dollar General after fellow deep discounter Big Lots saw its stock jump 54% last week. But I don't think the coast is clear when it comes to chains going through margin setbacks. Dollar General reports its fiscal third-quarter results on Thursday morning, and it's not likely to be pretty.
Net sales rose just 4% on flat comps in its previous report, shy of Wall Street profit targets. The bottom line was another miss, with margins contracting as shoppers were prioritizing food and household essentials that carry lower markups than the rest of the retailer's wares. Rising labor costs and other operating expenses aren't helping the path down the income statement either.
Image source: Getty Images.
The story hasn't gotten any better since its last report. A few weeks later, the company introduced a new CEO. The market actually liked the change at the top, but it also hosed down its guidance in the process.
Analysts see the chain of 19,488 neighborhood general stores ringing up $9.65 billion in revenue in this week's financial update, a mere 2% year-over-year advance. They also are bracing for a profit of $1.19 a share, almost half of what it delivered a year earlier. Dollar General has missed Wall Street income estimates in back-to-back reports. You have to go back more than a year to find the last time Dollar General beat analyst profit targets.
2. Thor Industries
If you think expectations for Dollar General are low, kick the tires of Thor Industries. The maker of recreational vehicles saw its net sales plummet 32% in fiscal 2023, with profits per share shaved by nearly two-thirds. The swoon is understandable after an initial post-pandemic spike that saw demand outstrip supply. Things are normalizing now, but the market is still waiting for things to bottom out.
Wall Street pros see net sales and earnings per share plummeting 19% and 58%, respectively, when the company announces results for its fiscal first quarter of 2024 on Wednesday morning. Unlike Dollar General, Thor has surpassed bottom-line forecasts in back-to-back reports. However, Thor stock is already up 40%. That's a sharp contrast to Dollar General shares that have fallen 45% in 2023.
3. Big Lots
I was clearly wrong on Big Lots last week. The deep discounter lost a lot of money in its latest quarter, but it turned sentiment around by suggesting that its business was starting to turn the corner. It does see negative comps in the current holiday quarter, but it expects a year-over-year improvement in adjusted operating results for the first time in three years.
It's OK to be skeptical, and last week's pop seems overdone. If Dollar General's results disappoint, it will probably drag other discount retailers down in the process, including Big Lots.
The stock market is always on the move. If you're looking for safe stocks, you aren't likely to find them in Dollar General, Thor Industries, and Big Lots 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 Warner Bros. Discovery. The Motley Fool recommends Big Lots. The Motley Fool has a disclosure policy.
