With the Fed signaling oversized rate hikes for longer is the likely trajectory moving forward, it is understandable why investors are looking for stocks to sell rather than stocks to buy. Consumer spending continues to rise, and inflation refuses to go down. Moreover, the jobs market is surprisingly strong despite recent rate hikes, with unemployment decreasing to 3.5% in September. Meanwhile, some sectors still face supply chain issues and worker shortages.
A difficult but sensible solution is to continue hiking interest rates, despite the pain in the stock market. The Wall Street Journal’s chief economics correspondent Nick Timiraos is often considered the Fed’s mouthpiece. He wrote an article on Sunday suggesting that interest rates will stay higher for longer, and highlighted economist Steven Blitz’s sentiment about interest rates reaching as high as 5.5%.
With another likely 75 basis point (0.75%) hike en route on Wednesday, that does not seem unrealistic, especially considering that the Fed projected interest rates flatting out at 2.875% in March this year. Thus, the current Fed estimate of 4.625% is also something I’d take with a grain of salt.
Of course, now is still the prime time to invest. Many stocks are going for a bargain, and safe stocks still exist. However, some stocks are ill-fated in the current economic environment and could see more significant downside. I believe the following seven stocks are worth selling before that happens.
| NVAX | Novavax | $22.00 |
| MARA | Marathon Digital Holdings | $12.22 |
| MSTR | MicroStrategy | $257.20 |
| DUOL | Duolingo | $81.23 |
| XENE | Xenon Pharmaceuticals | $37.12 |
| FIZZ | National Beverage | $47.16 |
| OPEN | Opendoor Technologies | $2.44 |
Novavax (NVAX)
Novavax (NASDAQ:NVAX) is a Maryland-based biotechnology company researching and developing vaccines. The coronavirus pandemic came as a blessing for NVAX stock, causing it to surge more than 7,600%-plus from its pre-pandemic trough.
Unfortunately for Novavax, AstraZeneca (NASDAQ:AZN), Moderna (NASDAQ:MRNA), Pfizer (NYSE:PFE), and Johnson & Johnson (NYSE:JNJ) all got their vaccines approved rather quickly in 2022, and most of the population was vaccinated using those vaccines. As a result, investors grew increasingly impatient with NVAX stock, leading to a selloff.
Novavax stock is now down more than 84% year-to-date, with minimal future upside potential. The FDA finally granted emergency authorization to the Novavax COVID-19 vaccine in July of this year. That said, it’s too little, too late for NVAX stock, with this approval unlikely to create any long-term benefit for shareholders.
As of Q2, the company’s revenue has declined by 37.6% year-over-year to $186 million, and its quarterly losses have worsened by almost 45%, ballooning to $510 million. In addition, with an Altman Z-score of -3.13 (signaling distress), and its debt-to-equity ranked worse than 100.00% of 1097 companies in the biotechnology industry, Novavax could go bankrupt very soon.
Marathon Digital Holdings (MARA)
Marathon Digital Holdings (NASDAQ:MARA) is a company that focuses on mining cryptocurrencies such as Bitcoin (BTC-USD), and is another company in distress. The post-pandemic boom in the cryptocurrency market funded by stimulus packages and ultra-low interest rates is long behind us, and the market capitalization of the entire crypto market is down by almost 50% year-to-date. As a result, the company is no longer profitable, with MARA stock falling nearly 83% from its peak on November 2021.
Adding salt to Marathon’s wounds, the recent Ethereum (ETH-USD) upgrade called “the Merge” eliminated crypto mining from the second biggest crypto network. After Ethereum switched to a proof-of-stake network, mining ETH is no longer possible for Marathon Digital.
Moreover, looking at energy costs and electricity bills going higher worldwide, and the stock market continuing its decline, Marathon Digital will be in a lot of trouble in this economic climate. That is demonstrated by its second-quarter results showing revenue of $25 million against losses of $192 million.
MicroStrategy (MSTR)
Another company getting wrecked by the current economic climate is MicroStrategy (NASDAQ:MSTR). The company bought billions of dollars worth of Bitcoin using debt, and is at serious risk of bankruptcy, as evidenced by its Altman Z-score of -1.39. Moreover, the company’s debt-to-equity ratio stands at -13.1, ranked worse than 100.00% of 2067 companies in the software industry. This is not a company you’d want to hold while the Fed tightens.
As of Sept. 20, MicroStrategy holds approximately 130,000 BTC bought at an average price of $30,623. That is well above the current price of around $20,500 per Bitcoin. I do not see the company making a profit soon, as a hawkish Fed is determined to take inflation down to 2%. Instead, I see the company going bankrupt in this economy. Thus, I believe MSTR is one of the top stocks to sell right now.
Duolingo (DUOL)
Duolingo (NASDAQ:DUOL) is a language-learning platform that recently undertook its initial public offering (or IPO) in 2021. As with most stocks after their IPO, DUOL stock also declined materially. Currently, this stock is down around 60% from its peak in September 2021.
DUOL stock has now found a relatively stable valuation at $80-$100, but it can go down more by the end of this year. I believe the company’s financials don’t justify its current $3.2 billion market cap. Thus, I consider it to be a top pick for investors looking for stocks to sell.
Admittedly, Duolingo’s top-line growth is impressive, and has been consistently growing at around 50% year-over-year. Will that continue in the current environment? I don’t think so. Even more importantly, Duolingo’s profitability has been badly hit. The company’s quarterly losses stand at $15 million, and the company does not seem to be heading towards profitability soon.
Of course, this is a company that isn’t at risk of bankruptcy. But its valuation solely relies on long-term speculation about its growth prospects. As we’ve seen many times this year, it only takes a single bad earnings call to provoke a massive selloff. Therefore, DUOL stock isn’t worth this risk, with many other tech stocks valued at bargain prices, at least not in the current environment.
Xenon Pharmaceuticals (XENE)
Xenon Pharmaceuticals (NASDAQ:XENE) stock has been untouched by this year’s bear market. In fact, XENE stock is up more than 15% year-to-date, and continues to go up, despite considerable earnings misses. That is likely due to the company’s liquidity position, with its liquidity ratio being ranked better than 98.79% of 1,564 companies in the biotechnology industry, as well as a very attractive debt-to-equity ratio of just 0.01. Even though Xenon Pharmaceuticals is unprofitable, its financial strength is notable.
So what’s wrong? It is clear that nothing is wrong with the company’s financials, but rather the company’s valuation, given its market capitalization of $2.3 billion. Xenon Pharmaceuticals has quarterly revenue of just above half a million dollars, down 76% YoY. In comparison, losses are at $31 million.
The main argument for this company’s excessive valuation is its multiple promising mid- to late-stage clinical trials. If the company files for full approval as planned, it will still take up to 10 months for the FDA to approve any of these options. Even then, I cannot see a $2.3 billion valuation being justified, as only one drug, “XEN496,” is in the middle of its Phase 3 trial. Thus, investors should consider XENE as one of the stocks to sell.
National Beverage (FIZZ)
Buying National Beverage (NASDAQ:FIZZ) is a volatile play that I won’t recommend in the current market. FIZZ stock surged more than 400% from Jun. 2015 to Sept. 2017. It then flattened out and erased 64% of its gains by Jul. 2019. In the post-pandemic period, it again surged 277% to a new peak, before entering a period of decline.
National Beverage’s top line only grew at 1.9% year-over-year in the most recent quarter, and its net income growth has been declining for the last 12 months. In addition to its volatility, the company’s financials do not justify its market cap of $4.4 billion. Thus, I believe FIZZ stock is a sell at a price-earnings ratio of 31.7-times, with mediocre financials.
Opendoor Technologies (OPEN)
The caboose of this stocks to sell article is Opendoor Technologies (NASDAQ:OPEN), a real estate company that buys residential real estate and sells these properties for a profit. Real estate prices will likely decline due to interest rate hikes, which have the potential to significantly hurt Opendoor’s business model.
The stock is already down 83% year-to-date. Nonetheless, I see more downside for the stock, as its quarterly earnings could soon reflect the pain the housing market is seeing real-time. Its debt-to-equity ratio is already at 3.2, ranked worse than 92.91% of 1,552 companies in the real estate industry. On that note, I believe it is one of the stocks to sell.
On the date of publication, Omor Ibne Ehsan 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.