The better-than-expected employment report for September indicated that the economy is not cooling down fast enough and has paved the way for a further massive rate interest hike by the Federal Reserve in November. An expected increase in borrowing costs has caused a fresh bout of panic in the stock market.
The Nasdaq composite slipped into a bear market for the second time this year. Also, the S&P 500 and the Dow Jones are already in bear markets, defined by a decline of 20% or more from their recent peaks.
With earnings estimates for the recently concluded quarter cut by analysts and investors on edge ahead of Thursday’s inflation data, the markets seem unlikely to settle down anytime soon. Moreover, the funding drought caused by rising interest rates is expected to make the survival of fundamentally weak companies, which are yet to find their way to consistent profitability, an uphill battle.
Therefore, we suggest shorting struggling stocks SoFi Technologies, Inc. (SOFI) and Cassava Sciences, Inc. (SAVA).
SoFi Technologies, Inc. (SOFI)
SOFI operates as a one-stop shop for financial services through its platform. The company operates through three segments: Lending; Technology Platform; and Financial Services.
On August 9, SOFI announced the launch of two new ETFs: SoFi Web 3 (TWEB) and SoFi Smart Energy (ENRG). However, with markets under significant pressure due to macroeconomic and geopolitical headwinds, it may be quite a while before these new launches find traction among investors.
In the second quarter of fiscal 2022 ended June 30, SOFI reported a net loss of $95.84 million and a net loss per share of $0.12. During the same period, its non-interest expense increased 15.5% year-over-year to $458.24 million. The company’s total liabilities stood at $7.16 billion as of June 30, 2022, compared to $4.48 billion as of December 31, 2021.
SOFI’s loss per share for the fiscal 2022 third quarter (ended September) is expected to come in at $0.07. Also, analysts expect the company to report a net loss of $0.32 per share for the current fiscal year, ending December 2022. SOFI has failed to surpass the consensus EPS estimates in three of the trailing four quarters.
The stock has declined 22.8% over the past month and 68.1% year-to-date to close the last trading session at $5.00.
SOFI’s weak fundamentals are reflected in its POWR Ratings. 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.
It has a grade of F for Stability and Quality and a D for Growth and Value. It is ranked #102 among 103 stocks in the F-rated Financial Services (Enterprise) industry.
Click here to see additional ratings of SOFI for Momentum and Sentiment.
Cassava Sciences, Inc. (SAVA)
SAVA, a clinical-stage biotechnology company, develops drugs for neurodegenerative diseases to improve patients and healthcare professionals. The Company’s products include Simufilam and SavaDx.
SAVA did not report any revenue in the second quarter of the fiscal year 2022 ended June 30, while its operating loss widened 287.6% year-over-year to $19.92 million. The company’s net loss also widened 277.1% year-over-year to $19.33 million. This resulted in a quarterly loss of $0.48 per share, worsening by 269.2% from the prior-year quarter.
Analysts expect SAVA to end the fiscal year 2022 without reporting any revenue. The company’s loss per share for the current year is expected to worsen by 152.4% year-over-year to $2.07. SAVA’s stock has plummeted 25.7% year-to-date to close the last trading session at $35.64.
SAVA’s bleak prospects are reflected in its POWR Ratings. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.
It also has an F grade for Growth and a D for Momentum, Sentiment, Stability, and Quality. It is ranked #371 among 386 stocks in the F-rated Biotech industry.
Click here for all POWR Ratings of SAVA.
SOFI shares were unchanged in after-hours trading Wednesday. Year-to-date, SOFI has declined -67.87%, versus a -24.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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