Fears of an economic downturn amid the recent regional bank collapses and macroeconomic headwinds paint a gloomy picture for the stock market. Amid such uncertainties, stocks such as Norwegian Cruise Line Holdings Ltd. (NCLH), First Majestic Silver Corp. (AG), and Nano Dimension Ltd. (NNDM) might be best avoided for reasons mentioned throughout the article.
The Fed’s incessant rate hikes, sticky inflation, and geopolitical uncertainties dashed investor hopes last year. However, rekindled investor hopes on the backs of an improved economic scenario were evident from the stock market rally. But gradually, this lost steam due to rekindled macroeconomic headwinds.
Consequently, the already existing recessionary fears were aggravated further owing to the sudden upheaval in the banking sector. Moreover, the failure has also fueled a “credit crunch” that could result in tightened lending standards.
In addition, the Fed’s recent 25-basis-point rate hike is projected to push the economy into a painful recession. Edward Yardeni, an independent economist, said he would estimate that the impact of banking failures would be equivalent to a full-percentage-point hike.
Gregory Daco, chief economist at the consulting firm EY-Parthenon, said, “Credit is really the grease that oils the U.S. economy and allows it to function and grow at a stable pace. Without credit — or with slower credit growth — we’re likely to see businesses be more hesitant when it comes to investment decisions, when it comes to hiring decisions.” He further anticipates that the tightening of bank credit has increased the risk of a recession.
Furthermore, given the current market dynamics, bearish market commentators warn of an even steeper drop in equities. Morgan Stanley forecasts a 26% drop in the S&P 500 in the upcoming months, and legendary investor Jeremy Grantham forewarned a 50% crash in stocks.
Therefore, it might be wise to stay away from fundamentally weak stocks NCLH, AG, and NNDM.
Norwegian Cruise Line Holdings Ltd. (NCLH)
NCLH is a global cruise company that runs the Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises brands. It has roughly 28 ships with a total capacity of 59,150 berths. The company sells its products through retail/travel advisors and onboard cruise sales channels, alongside meetings, incentives, and charters.
The stock’s trailing-12-month gross profit margin of 11.91% is 66% lower than the 34.99% industry average. Its trailing-12-month EBITDA margin of negative 15.32% compares with the industry average of 11.43%. Also, its trailing-12-month ROCE of negative 181.50% compares to the 11.05% industry average.
NCLH’s forward EV/Sales of 2.19x is 98.6% higher than the industry average of 1.10x. Its forward EV/EBIT multiple of 17.95 is 39.5% higher than the industry average of 12.86.
NCLH’s total cruise operating expense increased 69.9% year-over-year to $1.22 billion in the fourth quarter that ended December 31, 2022. Its adjusted net loss and net loss per share stood at $439.75 million and $1.04, respectively. As of December 31, 2022, NCLH’s current assets came in at $1.87 billion, compared to $3.30 billion as of December 31, 2021.
Analysts expect NCLH to report a loss per share of $0.42 for the first quarter ending March 2023. Its revenue is expected to come in at $1.74 billion for the same quarter. Also, the company failed to surpass the consensus EPS estimates in three of four trailing quarters, which is disappointing.
The stock has plummeted 37% over the past year and 23.7% over the past month to close its last trading session at $12.52.
NCLH’s POWR Ratings reflect this bleak outlook. The stock has an overall D rating, equating to Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an F grade for Stability and Sentiment and a D for Quality. NCLH is ranked last among the four stocks in the F-rated Travel – Cruises industry.
Beyond the POWR Ratings stated above, we have also given NCLH grades for Growth, Value, and Momentum. Get all NCLH ratings here.
First Majestic Silver Corp. (AG)
Headquartered in Vancouver, Canada, AG engages in acquiring, exploring, developing, and producing mineral properties, focusing on silver and gold production in Mexico and the United States. The company owns and operates the San Dimas Silver/Gold Mine, the Jerritt Canyon Gold Mine, the Santa Elena Silver/Gold Mine, and the La Encantada Silver Mine.
AG’s trailing-12-month gross profit margin of 22.52% is 23.6% lower than the 29.47% industry average. Its trailing-12-month levered FCF margin of negative 25.62% compares to the industry average of 4.46%.
AG’s forward EV/Sales of 2.87x is 95.4% higher than the industry average of 1.47x. Its forward EV/EBITDA multiple of 16.58 is 125.4% higher than the industry average of 7.36.
On March 20, AG temporarily suspended all its activities at Jerritt Canyon, which represented about 21% of the company’s 2022 revenue, to reduce overall costs. Despite its efforts to increase underground mining rates since the acquisition of the Jerritt Canyon Gold Mine in Nevada, mining rates have remained below this threshold, and cash costs per ounce have remained higher than anticipated.
AG’s revenues for the fiscal fourth quarter that ended December 31, 2022, declined 27.7% year-over-year to $148.19 million. The company’s mine operating loss stood at $13.27 million compared to mine operating earnings of $40.36 million in the year-ago quarter. Also, its net loss for the quarter expanded 323.5% year-over-year to $16.82 million. Its loss per share came in at $0.06, indicating an increase of 200% year-over-year.
Analysts expect AG’s EPS and revenue for the fiscal year ending December 2023 to come in at negative $0.09 and $646.02 million, respectively.
Over the past year, the stock has declined 52.8% to close its last trading session at $6.55. It has declined 24.5% over the past three months.
It’s no surprise that AG has an overall rating of F, which translates to a Strong Sell in our POWR Ratings system.
The stock also has an F grade for Growth and Sentiment and a D for Value, Momentum, Stability, and Quality. It is ranked last in the 11-stock F-rated Miners – Silver industry.
Click here to see the POWR Ratings of AG.
Nano Dimension Ltd. (NNDM)
Headquartered in Israel, NNDM is an industry leader in Additively Manufactured Electronics (AME), Printed Electronics (PE), and Micro-Additive Manufacturing. It is known for its Dragonfly lights-out digital manufacturing system.
NNDM’s trailing-12-month gross profit margin of 34.69% is 31.1% lower than the 50.35% industry average. Its trailing-12-month levered FCF margin of negative 223.30% compares to the industry average of 6.08%.
Moreover, its trailing-12-month ROCE, ROTC, and ROTA of negative 21.97%, 5.82%, and 23.46% compare to the industry averages of 2.69%, 2.06%, and 0.67%, respectively.
NNDM’s total cost of revenues increased 739.2% year-over-year to $8.20 million for the fiscal third quarter that ended September 30, 2022. Its operating loss increased 37.9% from its year-ago value to $33.81 million. Its total comprehensive loss grew 273.8% from the prior-year quarter to $68.25 million.
The stock has plummeted 30.9% over the past year and 8.5% over the past month to close its last trading session at $2.59.
NNDM has an overall F rating, which equates to a Strong Sell in our proprietary rating system.
NNDM has an F grade for Quality and a D for Growth, Value, Stability, and Sentiment. Among the six stocks in the F-rated Technology – 3D Printing industry, NNDM is ranked last.
To view NNDM’s rating for Momentum, click here.
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NCLH shares were trading at $12.21 per share on Monday afternoon, down $0.31 (-2.48%). Year-to-date, NCLH has declined -0.25%, versus a 4.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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