With inflation far from Fed’s control, analysts predict the possibility of the central bank continuing its aggressive interest rate hikes. Amid the rising recession fears and continued market uncertainty, we think fundamentally weak stocks Twitter (TWTR), GameStop (GME), and Opendoor Technologies (OPEN) are best avoided now. Keep reading….
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The 8.3% year-over-year increase in August CPI makes the case stronger for the Fed to aggressively raise interest rates. Vanguard expects the benchmark lending rate to end this year at 3.75% and 2023 at 4.25%. Also, the investment management company has estimated a 65% chance of a recession in 2023.
Steve Hanke, professor of applied economics at Johns Hopkins University, said, “We’re going to have one whopper of a recession in 2023.” Amid the growing recession fears, a survey last month showed more than half of all U.S. companies are planning layoffs as they brace for an economic downturn.
Given this backdrop, we think fundamentally weak stocks Twitter, Inc. (TWTR), GameStop Corp. (GME), and Opendoor Technologies Inc. (OPEN) are best avoided now.
Twitter, Inc. (TWTR)
TWTR operates as a platform for public self-expression and conversation in real time. The company’s primary product is Twitter, a platform that allows users to consume, create, distribute, and discover content.
On September 13, 2022, TWTR’s stockholders approved the previously announced merger agreement for TWTR to be acquired by Elon Musk’s affiliates. However, Musk has been trying to terminate the deal. The social media company sued Musk for allegedly breaching the agreement, and a trial is expected to begin in mid-October.
TWTR’s revenue came in at $1.18 billion for the second quarter ended June 30, 2022, down marginally year-over-year. Its non-GAAP net loss came in at $57.73 million, compared to an income of $174.52 million in the previous period.
Also, its non-GAAP loss per share came in at $0.08, compared to an EPS of $0.20 in the year-ago period. Moreover, its adjusted EBITDA came in at $111.70 million, down 67.5% year-over-year.
TWTR’s EPS is expected to decline 27.3% year-over-year to $0.24 for the quarter ending December 2022. It missed EPS estimates in three of the trailing four quarters. Over the past month, the stock has lost 5.3% to close the last trading session at $41.66.
TWTR’s POWR Ratings reflect its poor prospects. It has an overall grade of D, which indicates a Sell. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Also, the stock has a D grade for Momentum, Stability, and Sentiment. Click here to access the additional POWR Ratings for TWTR (Growth, Value, and Quality). TWTR is ranked #45 out of 65 stocks in the F-rated Internet industry.
GameStop Corp. (GME)
Specialty retailer GME provides games and entertainment products through its e-commerce properties and various stores in the United States, Canada, Australia, and Europe.
GME’s net sales decreased 4% year-over-year to $1.14 billion for the second quarter ended July 30, 2022. Its gross profit came in at $282.20 million, down 12.1% year-over-year, while its net loss came in at $108.70 million, up 76.5% year-over-year.
GME’s EPS is expected to decrease 20.2% year-over-year to negative $1.37 in 2023. Its EPS is expected to remain negative in 2024. In addition, it missed EPS estimates in three of the trailing four quarters. Over the past month, the stock has lost 20.6% to close the last trading session at $28.96.
GME has an overall F grade, equating to a Strong Sell in our POWR Rating system. Also, it has an F grade for Stability and a D for Growth, Momentum, and Sentiment.
Click here to access GME ratings for Value and Quality. It is ranked #44 out of 46 stocks in the Specialty Retailers industry.
Opendoor Technologies Inc. (OPEN)
OPEN operates a digital platform for residential real estate in the United States. The company’s platform enables consumers to buy and sell a home online. It also provides title insurance and escrow services.
OPEN’s revenue came in at $4.20 billion for the second quarter ended June 30, 2022, up 254% year-over-year. However, its total operating expenses came in at $454 million, up 46% year-over-year. Its total liabilities came in at $7.78 billion for the period ended June 30, 2022, compared to $7.26 billion for the period ended December 31, 2021.
OPEN’s revenue is expected to fall 25.4% year-over-year to $2.85 billion for the quarter ending December 2022. Its EPS is estimated to decline 48.3% year-over-year to negative $0.43 for the same period. It missed EPS estimates in two of the four trailing quarters. Over the past month, the stock has lost 18.3% to close the last trading session at $3.88.
OPEN’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. In addition, the stock has an F grade for Stability, Sentiment, and Quality and a D grade for Growth and Momentum.
We also have graded OPEN for Value. Click here to access all of OPEN’s ratings. It is ranked #40 out of 42 stocks in the F-rated Real Estate Services industry.
TWTR shares were trading at $42.01 per share on Tuesday afternoon, up $0.35 (+0.84%). Year-to-date, TWTR has declined -2.80%, versus a -18.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master’s degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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