In line with broad expectations, the Fed raised its short-term borrowing rate by 75 basis points to a target range of 3.75%-4%. The central bank’s persistent hawkish stance is laying the groundwork for interest rates to reach 5% by March next year, triggering a recession.
With increased interest rates set to hurt businesses by weakening demand and making borrowings more expensive, economic recovery and return of markets to stability seem unlikely anytime soon. Colin Graham, head of multiasset strategy at asset manager Robeco, remarked, “Everybody got so bearish; it’s like everybody’s on one side of the ship thinking things will never get better.”
Given the uncertain economic and market conditions, it could be wise to avoid fundamentally weak and embattled stocks Coinbase Global, Inc. (COIN), Carnival Corporation & plc (CCL), and SoFi Technologies, Inc. (SOFI) until an end to the current turbulence is in sight.
Coinbase Global, Inc. (COIN)
COIN is a fintech company that provides end-to-end financial infrastructure and technology for the global crypto economy. The company offers financial accounts for retail crypto users, a liquid marketplace to institutions for crypto transactions, and technology and services for ecosystem partners.
On November 1, it was revealed that COIN had filed a federal court for permission to file a friend-of-the-court (amicus) brief in the ongoing lawsuit between the U.S. Securities and Exchange Commission (SEC) and Ripple Labs. SEC sued Ripple at the end of 2020 on allegations that it sold XRP as an unregistered security.
COIN has argued that the SEC's inconsistent enforcement approach creates “uncertainty” for companies in the sector.
On October 17, it was revealed that COIN is considering suing 1000 users in the republic of Georgia for taking advantage of a pricing glitch when the lari, the local currency, was priced at $290 rather than $2.90 for about six hours on COIN.
On September 12, reports emerged that the brother of a former COIN product manager pleaded guilty to a wire fraud conspiracy charge when prosecutors called the first insider trading case involving cryptocurrency.
The above developments illustrate a longstanding concern of financial regulators regarding the risks posed to institutions by external partnerships and justifies the call for greater regulation which hurts the USP of decentralized finance and businesses built around it, such as COIN.
In the fiscal 2022 second quarter ended June 30, COIN’s total revenue decreased 63.7% year-over-year to $808.33 million. During the same period, the company reported an operating loss of $1.04 billion, compared to an income of $874.73 in the prior-year period.
In addition, COIN’s net loss attributable to common shareholders came in at $1.1 billion and $4.98 per share, compared to a net income of $1.59 billion and $6.42 per share in the previous-year quarter, respectively.
Analysts expect COIN’s revenue for the fiscal year ending December 2022 to decline 57.7% year-over-year to $3.32 billion. Also, the company’s loss per share for the current year is expected to come in at $6.64, compared to EPS of $17.10 in the previous year.
The stock has plunged 75.8% year-to-date to close the last trading session at $60.71.
It is no surprise that COIN has an overall rating of F, which translates to a Strong Sell in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
COIN also has a grade of F for Growth, Stability, and Sentiment and a D for Value, Momentum, and Quality.
It is ranked last among 146 stocks in the F-rated Software – Application industry.
Carnival Corporation & plc (CCL)
CCL is one of the frontrunners in the field of global leisure travel. The company runs its ships under various brand names, including Carnival Cruise Line, Princess Cruises, Holland America Line, P&O Cruises (Australia), Seabourn, Costa Cruises, P&O Cruises (UK), and Cunard. The company owns and operates hotels, lodges, glass-domed railcars, and motor coaches.
On October 18, CCL announced an extension of the maturity of $87 million of convertible notes at the existing 5.75% rate by 18 months. This reflects the company’s debt obligations and entails potential interest rate risk amid the Fed’s persistent hawkishness.
In the fiscal 2022 third quarter ended August 31, CCL reported an operating loss of $279 million. The company’s adjusted net loss came in at $688 million during the same period. CCL’s long-term debt also increased marginally to $28.52 billion as of August 31, 2022, compared to its November 30, 2021 levels.
Analysts expect CCL’s loss per share to come in at $0.86 for the fiscal 2022 fourth quarter (ending November 2022). This is expected to make the company register a loss of $4.68 per share for the entire fiscal year 2022. The company has missed the consensus EPS estimates in each of the trailing four quarters.
The stock has declined 59.4% year-to-date to close the last trading session at $8.69.
CCL’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of D, which translates to a Sell in our proprietary rating system. It has a grade of F for Stability and Sentiment and a D for Value and Quality.
Within the F-rated Travel – Cruises industry, CCL is ranked #2 of 4 stocks.
Click here to see additional POWR Ratings for Growth and Momentum for CCL.
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 might take quite a while before these new launches find traction among investors.
In the third quarter of fiscal 2022 ended September 30, SOFI’s net loss widened 146.8% year-over-year to $74.21 million. This translated to a quarterly loss per share of $0.09, up 80% year-over-year. The company’s total liabilities stood at $10.33 billion as of September 30, 2022, compared to $4.48 billion as of December 31, 2021.
SOFI’s loss per share for the fiscal fourth quarter (ending December 2022) is expected to come in at $0.06. Also, analysts expect the company to report a net loss of $0.30 per share for the current fiscal year.
The stock has slumped 67.4% year-to-date to close the last trading session at $5.12.
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. It has a grade of F for Stability and Quality and a D for Growth, Momentum, and Value.
SOFI is ranked #104 among 106 stocks in the F-rated Financial Services (Enterprise) industry.
Click here to see additional ratings of SOFI.
COIN shares were trading at $56.56 per share on Thursday afternoon, down $4.15 (-6.84%). Year-to-date, COIN has declined -77.59%, versus a -20.58% 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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