A few months ago most consumers and investors were expecting rate cuts perhaps as early as February or March. Today, it looks like June is the more likely scenario. It is still expected that the Federal Reserve will enact three rate cuts in 2024 but the shift has limited the perception of monetary easing this year. That means more stocks have now become stocks to sell.
The longer rates remain higher the more difficulty companies will have. Firms rely on financing and the interest is largely dictated by the FED funds rate. Thus, rate cuts result in lower interest payments making business models more tenable overall.
Growth stocks are particularly affected. Lower rates spur larger investment by which such firms can chase higher growth rates. such firms looked much better months ago when it was expected that rate cuts would be enacted earlier. That is just one of many narratives below to consider in relation to stocks to sell.
ContextLogic (WISH)
ContextLogic (NASDAQ:WISH) is a stock that investors should sell or avoid for many reasons. In relation to limited monetary easing it is one to sell because the consumer continues to weaken.
Economists have struggled to accurately predict consumer behavior as the FED has tightened monetary policy. Those economists have continuously predicted that consumers will revolt due to higher prices. As a result, retail spending has continuously been predicted to fall. Yet, the consumer has remained stubborn and bucked those predictions again and again. Economists are again predicting that retail spending will decline due to the Fed’s decision to hold rates steady.
That’s actually more of a reason to avoid retail stocks. ContextLogic Is one such choice but the reasons to avoid it are much bigger. The company recently announced plans to sell its e-commerce platform. investors, for some reason, believe that it will rejuvenate the company. Maybe it will, maybe it won’t. However, if the company couldn’t operate that platform profitably, why should investors then believe it will be able to operate another business successfully?
AMC Holdings (AMC)
AMC Holdings (NYSE:AMC) is a stock that is a little more than a pull of a slot machine: it can make you some money but odds are that it will end up costing you. That is the simple truth of the matter for the ailing movie theater operator.
It became popular for memes but the underlying business is troubled. Investors should remember that above all else.
The company lost nearly $400 million during the most recent year. It did so even as sales increased by 23%. Those sales will not continue to grow at that rate but AMC will continue to lose money.
AMC has tried a lot of things to change its fortunes. Some of them, like investing in a gold mining company, made no sense at all in relation to its business. Others, like its recent decision to sell its popcorn through grocery stores make more sense. Will it be enough to return the company to profitability? Almost certainly not. Point being, it will continue to be a pull of the slot machine that will burn more people than it will reward.
Vornado Realty (VNO)
Commercial real estate stocks including Vornado Realty (NYSE:VNO) are facing headwinds from multiple directions.
Higher interest rates have spiked Delinquency rates making it more difficult for the commercial operators to pay their bills in turn. It’s a vicious cycle that tends to cascade across commercial real estate as rates rise.
It has been evident that Vornado Realty is one such troubled firm: the company suspended its dividend almost a year ago. Most investors place their capital in REITs for their dividends. So, when Vornado Realty suspended its dividend for 2023 things were bad.
The company’s fourth quarter earnings report shows a company that is in preservation mode. While the company managed toReduce losses this year it continues to struggle. Frankly speaking, the earnings report is convoluted and difficult to understand. That’s probably intentional. Whether it is or isn’t, the small amount of profitability the company showed was mostly due to clever accounting.
Peloton (PTON)
Peloton (NASDAQ:PTON) is one of the more prominent covid era stocks that boomed and consequently went bust. The short success of the company was obviously due to the shuttering of gyms. It was also a consequence of monetary easing. Consumers, flush with stimulus cash, could afford subscriptions and expensive exercise bikes.
In any case, Peloton was once very hot and now it is struggling to survive.
The problem is that Peloton really doesn’t have the revenue opportunities that it once did. the company has looked too many possible Avenues to rejuvenate Its Top Line, most recently B2B subscriptions. It won’t matter because the company continues to burn through several hundred million dollars of cash for every quarter. Sooner or later the company will need to raise more cash through financing or through an issuance of additional shares. Both of those outcomes are negative and will push share prices lower which is another reason to sell PTON shares.
Crowdstrike (CRWD)
There’s no arguing that there’s a lot to like about Crowdstrike (NASDAQ:CRWD) and its stock. The company stands out as one of the healthier firms at the confluence of cybersecurity and artificial intelligence. Thus, it’s very easy to understand why its stock is trading at the price it is.
Revenues grew by 33% in the 4th quarter and by 36% in all of 2023. The demand for secure endpoints is very clearly strong. Add to that the fact that Crowdstrike recently announced a strategic collaboration with Nvidia (NASDAQ:NVDA) and its prospects seem to only brighten.
However, Crowdstrike is overpriced. take a look at its P/E ratio, for example. Its earnings are more expensive than 99% of the software sector. Further, the company continues to struggle in relation to capital returns. In fact, its Investments end up losing money which is a considerable problem given that the cost of capital averages more than 9% for the firm.
C3.ai (AI)
C3.ai (NYSE:AI) stock would certainly benefit from earlier monetary easing as would most every other growth stock. The longer those cuts take to arrive the worse its outlook becomes.
That truth is part of the bigger picture which includes many reasons to sell AI stock. I’d assert that the biggest reason to get rid of C3.ai is its continued lack of profitability. Remember, the stock was hammered in September of last year when it withdrew previous guidance for non-GAAP profitability by the end of fiscal year 2024.
The company continues to produce losses whether by GAAP standards or non-GAAP standards. Rate cuts would help the company just as they would help any other by decreasing the costs of lending. However, I’m not sure that that’s the biggest issue. Instead, I think it’s more about the fact that the company is overhyped as an enterprise AI firm. There’s a lot of skepticism around AI stock which is evident in the fact that nearly 1/3 of its shares are sold short.
Lucid (LCID)
Arguably the biggest reason to avoid Lucid (NASDAQ:LCID) stock stems from its delivery outlook for this year. High interest rates aren’t aren’t far behind given how much money the company loses: it could certainly benefit from lower interest rates.
Let’s start by looking at those deliveries. Lucid delivered 8,423 vehicles in all of 2023. That resulted in losses approaching $3 billion for the year. Unfortunately, the company has also given guidance that it expects to produce 9,000 vehicles in all of 2024. It’s highly likely then that the company will continue to rack up losses into the billions of dollars this year.
The company ended the most recent period with $4.78 billion in liquidity. That suggests that the company can pretty comfortably make it through 2024 without raising more capital. That’s important in relation to current interest rates. While that suggests Lucid is not particularly threatened by later rate cuts it continues to be troubled and it’s better to avoid it overall.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
