Over the last few weeks, scores of stocks have come back stronger than ever. Unfortunately, many of those are now leading the list of stocks to avoid. All, as concerns about inflation, interest rates, and a possible recession rise again.
Stocks to Avoid: C3.ai (AI)
With all the buzz surrounding OpenAI’s ChatGPT, and the possible acceleration of big tech’s move into the world of artificial intelligence, it’s no surprise shares in C3.ai (NYSE:AI) have taken off once again. Even after pulling back, AI stock is up by more than 100% since the start of the year. Hit especially hard during the 2021/2022 tech sell-off, investors have piled back in. There are now high expectations that a significant rise in demand for this enterprise AI software company’s services is just around the corner. However, taking a closer look, it may be possible that the market is overestimating the impact of current AI trends. As a Seeking Alpha commentator recently argued, so far there’s little to suggest that these trends, coupled with the recently-announced launch of C3.ai’s C3 Generative AI Product Suite, will result in an explosion in growth.
Stocks to Avoid: Carvana (CVNA)
Sitting in the stock market junkyard at the start of the year, Carvana (NYSE:CVNA) has zoomed back to double-digit prices in recent weeks. However, shares in the online automotive retailer are starting to pull back, as temporary factors, such as the stock’s perceived short-squeeze potential, fade. Analysts already anticipate declinings sales, and heavy losses, for Carvana in 2023. As demand for used vehicles continues to drop, the company’s results this year could come in far worse than currently-expected. If Carvana’s operating performance worsens this year, concerns about a possible bankruptcy could come off the back burner. All of this could push CVNA not only back to its 52-week low ($3.55 per share), but to new lows as well, making it one of the top stocks to avoid.
Stocks to Avoid: Netflix (NFLX)
A rebound for Netflix (NASDAQ:NFLX) shares has been playing out over the past six months. During this timeframe, investors have warmed back up to the streaming giant. This is thanks to the company’s plans to roll out a lower-priced, ad-supported version of its platform, as well as its recent efforts to crack down on password sharing. However, while these initiatives stand to help get the FAANG component back into a high-growth mode, it’s possible the potential upside from both of them is already baked into the valuation of NFLX stock.
Shares currently trade for around 36.5 times earnings. That’s a premium valuation, considering that it’s not set in stone that growth re-acceleration is just around the corner. NFLX may not be necessarily at risk of a total reversal, but if future operating results disappoint, a moderate pullback may be in store.
“ChatGPT mania” has been a big factor in Nvidia’s (NASDAQ:NVDA) recent rebound. Sure, unlike C3.ai, the rise of ChatGPT is relevant to the future prospects of this chipmaker. As some Wall Street analysts have argued, Microsoft’s (NASDAQ:MSFT) $10 billion investment into OpenAI, ChatGPT’s developer, signals strong demand ahead for Nvidia’s GPUs. This may result in billions of previously-unexpected sales. Still, this tailwind may not fully counter the softening of demand among the company’s other end-users.
Although some on the sell-side are bullish, analyst forecasts for earnings per share (or EPS) this fiscal year (ending January 2024) vary widely. The consensus forecast calls for EPS of $4.29, implying shares today trade for 50 times earnings. If the tech slowdown continues, despite the AI secular growth trend, it may prove difficult for the stock to hold steady, much less rise, from here.
SoFi Technologies (SOFI)
As I discussed recently, an improved macro outlook, plus a well-received earnings report, has been a boon for investors in SoFi Technologies (NASDAQ:SOFI). Shares in the fintech firm/neobank have bounced back strongly thus far this year. However, this SOFI stock rebound may be fleeting. Shares have already started to fall back toward pre-earnings price levels. In the months ahead, if today’s economic challenges worsen, or if further challenges arise regarding student loans (SoFi’s original business), the impact on results could place additional pressure on the stock.
Over a longer timeframe, the additional upside for SOFI hinges on whether the market will continue valuing it like a tech stock, or, as it becomes more akin to a bank, assign it with a (lower) bank stock multiple. As these uncertainties continue to hang over it, consider SOFI one of the stocks to avoid, at least until it falls back toward its lows.
Tesla (NASDAQ:TSLA) skeptics have been humbled once again. Over the past month, the EV maker’s shares have hopped back into the fast lane. Following Tesla’s latest earnings report, investors are bullish that the company can maintain high growth, with little impact on its industry-leading profit margins. However, while excitement about Tesla’s upcoming investor day, where it is expected to reveal its “Third Master Plan,” could provide support, shares may have minimal runway from here. After more than doubling off its lows, future expected growth may now be overly priced-in.
Also, it’s not a lock that recent efforts such as vehicle price cuts will result in an ideal scenario for Tesla. Over the next few months, if the company’s sales growth fails to pick up significantly, and margins keep falling, TSLA could give back a good deal of its recent gains. With risk/reward less favorable, hold off for now.
Uber Technologies (UBER)
Ahead of earnings, investors bid up Uber Technologies (NYSE:UBER). Shares in the ride-share and meal delivery giant moved higher immediately after the results hit the street on Feb. 8, but have started to inch lower. Given that the company reported strong numbers, and management provided an upbeat outlook for the current quarter, you may be tempted to pounce on this post-earnings weakness in UBER stock. However, while sales are growing, and margins are expanding, another big run may not be in store for shares.
Today’s valuation may overly assume that the company will continue to “crush it” with subsequent quarterly results. The company is for now “defying the economic downturn” (as the New York Times has put it), yet that may not necessarily be the case later this year. Even if bullish, Consider UBER one of the stocks to avoid, until it hits a more opportune entry point.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.