The Federal Reserve unanimously approved a quarter-point interest rate hike on Wednesday, slowing the pace of its increases in a clear sign that the central bank is accepting the progress in its fierce battle with inflation. The central bank's benchmark overnight lending rate is now 4.50%-4.75%.
While the Fed officials are slowing rate hikes after months of unusually aggressive action, the central bank is far from declaring victory. Fed Chair Jerome Powell added that unless the economic trajectory changes drastically, he doesn’t expect to cut rates this year.
Michael Burry, the famed fund manager of "The Big Short," appears to have severe doubts about the stock market's stunning start to the year. He tweeted a single word recently, "Sell,” likely urging investors not to be fooled by the recent rebound in stocks.
Moreover, in a recent letter to its investors, the Universa Investments fund, that is advised by "The Black Swan" author Nassim Taleb, who called the financial crash that spurred the 2008 recession, warned that the economy was headed for another financial collapse that could mirror the market crash leading to the Great Depression.
Given this backdrop, fundamentally weak stocks NVIDIA Corporation (NVDA), Ally Financial Inc. (ALLY), Opendoor Technologies Inc. (OPEN), and Mullen Automotive, Inc. (MULN) might be best avoided now.
NVIDIA Corporation (NVDA)
NVDA is a global provider of graphics, computation, and networking technologies. The company operates in two segments: Graphics and Compute & Networking. The company’s products are used in the gaming, professional visualization, data center, and automobile industries.
In terms of forward EV/Sales, NVDA is trading at 17.80x, which is 515.7% higher than the industry average of 2.89x. Its forward Price/Sales multiple of 17.84 is 510.1% higher than the industry average of 2.93.
For the fiscal 2023 third quarter that ended October 30, 2022, NVDA’s revenue declined 16.5% year-over-year to $5.93 billion, and its gross profit fell 31.4% year-over-year to $3.18 billion. Its non-GAAP net income and non-GAAP EPS decreased 51% and 50.4% from the previous year’s quarter to $1.46 billion and $0.58, respectively.
Analysts expect NVDA’s EPS to decline 39.3% year-over-year to $0.80 for the fourth quarter that ended January 2023. Its revenue is likely to fall 21.2% year-over-year to $6.02 billion in the same quarter.
The stock has declined 14.9% over the past year to close the last trading session at $209.43. It has a 24-month of 2.08.
NVDA’s POWR Ratings reflect its bleak outlook. The stock has an overall rating of D, which translates to a 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 also has a D grade for Growth, Value, and Stability. Within the Semiconductor & Wireless Chip industry, it is ranked #78 of 92 stocks.
Click here to see the other ratings of NVDA for Momentum, Sentiment, and Quality.
Ally Financial Inc. (ALLY)
ALLY is a digital financial services company that provides various digital financial products and services to consumer, commercial, and corporate customers, primarily in the United States and Canada. It operates through four segments: Automotive Finance Operations; Insurance Operations; Mortgage Finance Operations; and Corporate Finance Operations.
ALLY’s net financing revenue declined 2.6% from the previous quarter to $1.67 billion during the fiscal fourth quarter that ended December 2022. The company’s net income declined 7% from the prior quarter to $278 million, while its adjusted EPS came in at $1.08, down 3.6% from the third quarter.
The company’s EPS is expected to decline 55.7% year-over-year to $0.90 for the fiscal first quarter ending March 2023. Its revenue for the same quarter is expected to decline 3.4% year-over-year to $2.06 billion.
The stock has plummeted 31% over the past year, closing the last trading session at $33.84. Its 24-month beta is 1.33.
ALLY’s POWR Ratings reflect its weak fundamentals. ALLY has an overall rating of D, which translates to a Sell.
It has a D for Growth, Momentum, and Sentiment. The stock is ranked #39 among 48 stocks in the D-rated Consumer Financial Services industry.
Beyond the POWR Ratings stated above, we have also given ALLY grades for Value, Stability, and Quality. Get all ALLY ratings here.
Opendoor Technologies Inc. (OPEN)
OPEN operates a digital platform for residential real estate in the United States. Its platform enables consumers to buy and sell homes online.
Its trailing-12-month Total Debt/Equity of 542.5x is 469.3% higher than the industry average of 95.31x.
OPEN’s adjusted gross profit declined 52.8% year-over-year to $110 million in the fiscal third quarter that ended September 30, 2022. Its adjusted EBITDA loss came in at $211 million, compared to an adjusted EBITDA of $35 million in the prior-year quarter. Additionally, its net loss per share attributable to common shareholders increased 315% from the prior-year quarter to $1.47.
Analysts expect its EPS and revenue for the fourth quarter ended December 2022, to decline 179.5% and 35.4% year-over-year to negative $0.87 and $2.47 billion, respectively.
Over the past year, the stock has fallen 77.6% to close the last trading session at $2.40. It has a 24-month beta of 2.69.
OPEN’s POWR Ratings reflect its poor prospects. The stock has an overall rating of F, equating to a Strong Sell in our proprietary rating system.
It has an F grade for Growth, Stability, and Sentiment and a D for Momentum and Quality. Within the F-rated Real Estate Services industry, it is ranked #40 out of 42 stocks.
To access OPEN’s rating for Value, click here.
Mullen Automotive, Inc. (MULN)
MULN is an electric vehicle manufacturer and distributor. Its products include passenger electric vehicles and commercial vehicles, as well as solid-state polymer battery technologies.
In terms of the trailing-12-month Price/Book, MULN’s multiple of 4.88 is 109.8% higher than the industry average of 2.33.
During the fiscal year that ended September 30, 2022, MULN’s loss from operations rose 332.9% year-over-year to $96.99 million, and the company’s net loss grew substantially year-over-year to $740.32 million. In addition, its net loss per share for the year was $2.80.
The stock has plunged 90.1% over the past year and 59.5% over the past six months to close the last trading session at $0.35. MULN has a 24-month beta of 2.91.
It is no surprise that the stock has an overall rating of F, equating to a Strong Sell in our proprietary rating system.
MULN has an F grade for Value and Stability and a D for Sentiment and Quality. Within the D-rated Auto & Vehicle Manufacturers industry, it is ranked #57 among 64 stocks.
In addition to the POWR Ratings just highlighted, you can see MULN’s ratings for Growth and Momentum here.
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NVDA shares fell $209.43 (-100.00%) in premarket trading Thursday. Year-to-date, NVDA has gained 43.31%, versus a 7.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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