While the US stock market is going through uncertainties, investors need to navigate the turbulent waters of the stock market with caution. As economic tides flow high, even the mightiest giants can find themselves listed as stocks to sell. This article will delve into the vulnerabilities of three prominent companies, exploring why these stocks might be sailing toward stormy seas. Investors may consider adjusting their portfolios to get rid of these stocks to sell before the market dives.
General Motors (GM)
Strategically, General Motors (NYSE:GM) relies on partnerships for many of its components. Any partnership issues could impact GM’s product development and delivery timelines. For instance, GM has entered a $800 million commercial agreements with LG Corp. While the agreement is framed as a strategic decision to serve customers better, it could have a negative financial impact in the short-term. Another example, GM is experiencing unexpected delays in the ramp-up of EV production due to issues with automation equipment suppliers. This has caused the company to bring down the high end of its 2023 capital spend guidance by $1 billion. They also expect working capital headwinds related to module assembly challenges.
GM focuses on North America’s performance, and while it’s a significant market for GM, over-dependence on a single market can be a risk if economic conditions change. Also, the international operations of GM, excluding China, are facing significant challenges that have impacted their profitability. Excluding China, the segment delivered a lower adjusted EBITDA of $150 million, down by 50% year-over-year (YOY). However, maintaining profitability in the Chinese market has also proven challenging due to intense competition. Despite many new entries, GM has a single-digit market share in the Chinese EV market.
Carvana (CVNA)
Carvana (NYSE:CVNA) reported a 35% YOY decrease in retail unit sales in the last quarter. The decline is attributed to various factors. These include reduced inventory size, reduced advertising, increased benchmark interest rates and a focus on profitability initiatives. The used car market faces challenges, with used car sales being approximately 10% below their baseline.
Carvana has shifted its focus from growth to unit economics and profitability. While this is a positive step in the short-term, it raises questions about the company’s ability to return to solid growth in the long-term. Also, uncertainty about when and how Carvana will return to growth may raise concerns about the company’s long-term performance. Further, the company’s debt and balance sheet suggest that Carvana has significant debt. The need for further repositioning and a cautious approach to deleveraging suggests that the company’s financial health might be somewhat stable, for now.
Fundamentally, Carvana’s business model is built on aggressive growth, and its success depends on expanding its market share and customer base. Another challenge is affordability related to used car pricing and interest rates. Carvana’s consumers will likely need help with affordability due to high car prices or rising interest rates.
Coinbase (COIN)
Coinbase (NASDAQ:COIN) operates in a rapidly evolving regulatory environment, especially in the U.S. The ongoing legal battle with the SEC highlights the company’s challenges in dealing with unclear regulations. The outcome of these legal proceedings could significantly impact Coinbase’s operations and prospects.
Coinbase’s revenue is highly dependent on the trading volume of cryptocurrencies. The recent decline in crypto volatility and trading volume in Q2 2023 resulted in lower transaction revenue. As the crypto market experiences prolonged periods of high volatility and a bear market, it negatively affects Coinbase’s financial performance. Also, the cryptocurrency exchange market is highly competitive, with new platforms constantly entering the space. Coinbase faces competition from both established players and emerging startups. Maintaining its position as the most trusted platform will require ongoing innovation and investment.
Finally, Coinbase is still in the early stages of expanding its product offerings, such as its derivative exchange. While these initiatives have potential, they also carry risks and uncertainties and may continue to attract legal action against the company.
On the date of publication, Yiannis Zourmpanos did not hold (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.
