The Federal Reserve has again raised interest rates by 0.75%, marking the third mega interest rate hike in a row. This brings the benchmark interest rates to a new range of 3.0% to 3.25%, which is its highest level since 2008.
Jerome Powell has reiterated the central bank’s commitment to bring down inflation to a target 2% rate. Powell has also noted that a soft landing where the economy avoids a recession would be challenging. Officials now expect the rates to be 4.4% by the end of this year and 4.6% by the end of 2023.
Economist Nouriel Roubini, who had earlier predicted the 2008 crash, has predicted recession to hit the United States at the end of 2022 and spread globally in 2023, lasting the entire year. Roubini has also stated that high-interest rates do not look good for the rise in global debt accumulated during the pandemic.
Given this uncertain economic situation, fundamentally weak stocks Snap Inc. (SNAP) and Palantir Technologies Inc. (PLTR) might be best avoided.
Snap Inc. (SNAP)
SNAP operates as an international camera company. The company provides Snapchat, a camera application with various functionalities that enable people to communicate visually through short videos and images.
For the fiscal second quarter that ended June 30, SNAP’s revenues increased 13.1% year-over-year to $1.11 billion. However, its non-GAAP net income decreased 120.5% from the prior-year quarter to a negative $29.60 million. Non-GAAP net income per share declined 120% from the same period the prior year to a negative $0.02.
The consensus EPS estimate of a negative $0.02 for the quarter ending September 2022 indicates a 111.8% year-over-year decrease. Likewise, the consensus EPS estimate for the fiscal year 2022 of $0.04 reflects a decline of 92% from the prior year.
The stock has declined 85.7% over the past year and 76.9% year-to-date to close its last trading session at $10.85.
SNAP’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
SNAP has a Stability and Sentiment grade of F and a Growth, Momentum, and Quality grade of D. In the 65-stock Internet industry, it is ranked #60. The industry is rated F. Click here to see the additional POWR Ratings for SNAP (Value).
Palantir Technologies Inc. (PLTR)
PLTR engages in building and deploying software platforms for the intelligence community for assistance in counterterrorism investigations and operations. The company’s offerings include Palantir Gotham, a software platform that enables users to identify patterns hidden deep within datasets.
On September 20, PLTR announced its partnership with South Korean Hyundai Heavy Industries Group by bringing Palantir Foundry to additional companies within the conglomerate. The partnership expansion is expected to benefit the company, but the gains might be stretched over a long period.
PLTR’s revenue increased 25.9% year-over-year to $473.01 million in the fiscal second quarter that ended June 30. On the other hand, adjusted net income attributable to common stockholders and adjusted EPS stood at a negative $21.12 million and a negative $0.01, down 121.6% and 125% from the prior-year period.
Street EPS estimate of $0.02 for the quarter ending September 2022 indicates a 50% year-over-year decrease. Likewise, Street EPS estimate for the fiscal year 2022 of $0.05 reflects a decline of 61.5% from the prior year.
Over the past year, the stock has declined 71.1% to close its last trading session at $7.69. It is down 57.8% year-to-date.
It’s no surprise that PLTR has an overall D rating, which translates to Sell in our POWR Ratings system. The stock has an F grade for Sentiment and a D grade for Value and Stability. It is ranked #19 of 25 stocks in the Software – SAAS industry. The industry is rated F.
In addition to the POWR Rating grades we’ve stated above, one can see PLTR ratings for Growth, Momentum, and Quality here.
SNAP shares were trading at $10.52 per share on Thursday afternoon, down $0.33 (-3.04%). Year-to-date, SNAP has declined -77.63%, versus a -20.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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