The Fed’s aggressive monetary policy to tame the persistent inflation has dragged major indexes significantly down over the past year. As the bear market is not over yet, fundamentally weak stocks Carnival Corporation (CCL), Carvana (CVNA), and Redfin (RDFN) might be best avoided. Read more.
The Federal Reserve has raised interest rates for the seventh time this year, taking the target rate into a range between 4.25% and 4.5%, the highest level in 15 years. The Fed expects anemic economic growth next year of just 0.5% and predicts that unemployment will hit 4.6%, up from its current rate of 3.7%. The central bank also expects inflation to stay higher for longer.
As the Federal Reserve mounts its most aggressive monetary policy tightening cycle in decades to fight inflation, the benchmark S&P 500 is down 19.3% year-to-date and headed for its biggest annual decline since 2008. Moreover, other indexes like the Dow Jones Industrial Average and the Nasdaq are all set to end the year in the red.
On top of it, Deutsche Bank said in its world economic outlook that the bear market rally in equity markets would continue into next year before slumping as a recession in the world economy takes hold.
Amid widespread recessionary fears, Mike Wilson, Morgan Stanley’s chief U.S. equity strategist, is warning clients about a looming plunge in corporate profits next year as the economy stumbles.
Given this backdrop, fundamentally weak stocks Carnival Corporation & plc (CCL), Carvana Co. (CVNA), and Redfin Corporation (RDFN) might be best avoided now.
Carnival Corporation & plc (CCL)
CCL operates as a leisure travel company. Its ships visit approximately 700 ports under the Carnival Cruise Line, Princess Cruises, Holland America Line, P&O Cruises (Australia), Seabourn, Costa Cruises, AIDA Cruises, P&O Cruises (U.K.), and Cunard brand names.
CCL’s forward E.V./Sales of 1.98x is 78.5% higher than the industry average of 1.11x. Its forward non-GAAP P/E multiple of 801.85x is significantly higher than the industry average of 12.36x.
CCL’s operating costs and expenses rose 56.4% year-over-year to $4.97 billion in the fiscal fourth quarter that ended November 30, 2022. Its operating loss amounted to $1.14 billion. The company reported an adjusted net loss of $1.07 billion, or $0.85 per share.
Analysts expect CCL to report negative EPS of $0.61 in the first quarter ending February 2023. It has missed its EPS estimates in three of the four trailing quarters.
The stock has lost 63.2% over the past year to close the last trading session at $7.81. It has a 24-month beta of 1.83.
CCL’s bleak outlook is reflected in its POWR Ratings. The stock has an overall D rating, equating to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an F grade for Stability and Sentiment and a D for Quality. It is ranked #3 out of four stocks in the F-rated Travel – Cruises industry.
Click here to access all of CCL’s ratings for Growth and Momentum.
Carvana Co. (CVNA)
CVNA and its subsidiaries operate an e-commerce platform for buying and selling used cars in the United States.
CVNA’s trailing-12-month Price/Book of 1.57x is 18.5% lower than the industry average of 1.92x.
CVNA’s net sales and operating revenues declined 2.7% to $3.39 billion for the third quarter that ended September 30, 2022. Its net loss rose 784.4% year-over-year to $283 million, while its loss per share came in at $2.67, up 602.6% year-over-year.
CVNA’s revenue is expected to decrease 15.6% year-over-year to $3.17 billion for the fiscal fourth quarter ending December 2022. Its EPS is expected to decline 126.6% year-over-year to negative $2.31 for the same period. It missed EPS estimates in all four trailing quarters.
It has lost 98.3% over the past year, closing the last trading session at $4.05. The stock has declined 49.2% over the past month. CVNA has a 24-month beta of 3.18.
CVNA’s POWR Ratings are consistent with its weak fundamentals. The stock’s overall F rating indicates a Strong Sell in our proprietary rating system.
CVNA has an F grade for Stability, Sentiment, and Quality and a D grade for Growth. Among the 59 stocks in the F-rated Internet industry, it is ranked last.
Click here for the additional POWR Ratings for Momentum and Value for CVNA.
Redfin Corporation (RDFN)
RDFN operates as a residential real estate brokerage company in the United States and Canada. The company operates an online real estate marketplace and provides real estate services, including assisting individuals in purchasing or selling homes. It also provides title and settlement services, originates and sells mortgages, and buys and sells homes.
In terms of its trailing-12-month Price/Book, the stock is currently trading at 4.35x, which is 199.7% higher than the industry average of 1.45x. Its trailing-12-month Total Debt/Equity multiple of 1192.9% is remarkably higher than the industry average of 95.15%.
RDFN’s service revenue declined marginally year-over-year.to $300.85 million for the third quarter that ended September 30, 2022. Its gross profit declined 54.4% year-over-year to $58.08 million, while its net loss increased 376.3% year-over-year to $90.25 million.
RDFN’s EPS is expected to decline 302.5% year-over-year to negative $1.09 in the fiscal fourth quarter ending December 2022. Its revenue for the same quarter is expected to decline 30.3% year-over-year to $448.27 million.
Over the past year, the stock has fallen 89.4% to close the last trading session at $4.30. RDFN has a 24-month beta of 2.51.
Its POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.
It has an F grade for Growth and Sentiment and a D for Stability and Quality. It is ranked last among the 40 stocks in the F-rated Real Estate Services industry.
To see the other ratings of RDFN for Value and Momentum, click here.
CCL shares rose $0.01 (+0.13%) in premarket trading Tuesday. Year-to-date, CCL has declined -61.18%, versus a -18.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor’s degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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