I have been picking stocks to avoid each week, finding names that I think could be challenged in the upcoming days. My two stocks to avoid recently were moving fast — down 28%, down 23%.
The S&P 500 increased 1.3% last week, so I was a winner with my bearish predictions. This week I see Digital World Acquisition Corp and Activision Blizzard as vulnerable investments in the close term. Here is why I believe these are two stocks to avoid during the current trading week.
Digital World Acquisition
My best call in the previous week was for the company Digital World Acquisition to be hit after good performance the week before. The SPAC (special purpose acquisition company) soared after partnering with the Trump Media & Technology Group for the start of the Truth Social platform.
It was not a political call. I have seen a lot of SPAC deals go up after announcing a big-name partner, only to then slide after reality kicks in. As with most SPACs, Digital World Acquisition has under $10 per share in cash, and hot acquisitions often need additional dilutive financing for SPAC investors.
The stock went down by 28% last week. I do not tend to repeat my bearish picks after such a big tumble, but Digital World Acquisition is still going for over four times its cash with terms of the possible pairing still not known.
One would think the huge video games industry is booming in the pandemic. If we are spending more time at home streaming, are we not also playing World of Warcraft and Call of Duty? Activision Blizzard is not living up to its part of the bargain. The stock is now trading closer to its 52-week low than to its 52-week high, and it is going to be a tricky quarterly report this Tuesday afternoon.
Activision Blizzard’s October offered more tricks than treats. It fired almost two dozen employees after harassment allegations, canceled next year’s BlizzCon online event, and rolled out anti-cheat mechanisms to deal with Call of Duty problems.
Activision Blizzard is having a bad year. Analysts see revenue going up shy of 5% in 2021, and it has posted double-digit top-line growth only once over the previous five years.
Author:: Scott Dowdy