With this year’s stock market downturn, it may seem too late to figure out which stocks to sell. Yet while major indices are down massively from their all-time highs, and scores of individual stocks have experienced far more severe price declines, many stocks still may have a ways to go before reaching their respective “bottoming out” moment.
As the Federal Reserve continues to raise interest rates to fight inflation, growth stocks, felled already by the impact of higher rates on their valuations, could continue to get knocked down further due to multiple compression.
Also, a recession may be just around the corner. According to a Bloomberg poll of economists, there is now a 60% chance of a U.S. Recession within the next twelve months. After reporting blockbuster results during the pandemic recovery, companies in more cyclical industries may be set to start reporting far less impressive numbers. This, too, could push former high-fliers lower.
Worse yet, rising interest rates and a possible recession could not only push certain growth plays, such as these seven stocks to sell, even lower. These factors could also keep them languishing at rock-bottom prices for quite some time.
| ABNB | Airbnb | $116.65 |
| CVNA | Carvana | $14.76 |
| MSTR | MicroStrategy | $225.72 |
| NIO | Nio | $10.84 |
| TSLA | Tesla | $221.77 |
| UBER | Uber Technologies | $27.46 |
| UPST | Upstart Holdings | $22.68 |
Airbnb (ABNB)
Compared to other “shared economy” stocks, Airbnb (NASDAQ:ABNB) is admittedly in much better shape. In contrast to continued cash burn, as seen with another of the stocks to sell listed below, this vacation rental property platform operator is consistently profitable.
As an online commentator recently argued when discussing the strengths of ABNB stock, the company generates a high amount of free cash flow. It has little in the way of capital expenditures. However, this “cash cow” status may not be enough to keep the stock steady, much less send it higher. This status may also be fleeting.
As I’ve argued previously, a recession could end the “revenge travel” trend. Trading for 55 times earnings, growth deceleration, and rising interest rates could push Airbnb down to a lower valuation. This could harm its profitability/cash flow.
Carvana (CVNA)
Take a look at a chart for Carvana (NYSE:CVNA), and it’s clear this stock has already made it to the market graveyard. So then, why even mention it as a stock to stay away from ahead of this fate?
As Louis Navellier discussed earlier this month, with its significant drop in price, some may be tempted to bottom-fish in CVNA stock, but to do so is a very risky move. Given that the used car market has only started to enter a downturn, there may be more pain ahead for investors.
Navellier isn’t the only one arguing that the situation could get far worse for Carvana. On Oct. 18, Wedbush analyst Seth Basham downgraded the stock, citing issues like deteriorating market conditions and a bloated cost structure as major negatives. Carvana may have made its trip to the graveyard, yet the stock could get buried deeper from here.
MicroStrategy (MSTR)
From late 2020 through late 2021, shares in MicroStrategy (NASDAQ:MSTR) were flying high, but not because of anything to do with the software company’s legacy business. Rather, speculators bid up the company’s shares as the crypto bubble increased the value of MicroStrategy’s treasure trove of Bitcoins (BTC-USD).
Of course, since then, with BTC’s collapse, so too has MSTR stock taken a big tumble. Since hitting prices topping $1,000 per share in February 2021, the stock today now trades for around $235 per share. CEO Michael Saylor’s push to invest MicroStrategy’s excess cash into this cryptocurrency has resulted in around $1 billion in paper losses.
Although it’s possible BTC is bottoming out at present price levels, if the “crypto winter” continues and this alternative to traditional currency fails to become the “future of money,” MSTR could fall deeper, with little chance of climbing back up.
Nio (NIO)
While down significantly since the height of the bubble among electric vehicle (or EV) stocks, Nio (NYSE:NIO) remains far above its pre-boom price levels. As recently as mid-2020, shares in the China-based EV maker were changing hands in the low single-digits.
However, a return to such bargain basement prices could be in the cards for NIO stock. Why? Nio’s quarterly revenue growth has been anemic lately due to macro headwinds in China. It’s starting to look questionable whether the company can get back into high-growth mode.
Some may be bullish that Nio’s expansion into Europe enables the company to move out of the red, yet success outside its home turf could prove elusive. With high revenue growth, it will be difficult for Nio to become profitable. In time, failing to progress toward profitability may push it back to penny stock levels.
Tesla (TSLA)
After the stock’s incredible run from the early days of the pandemic to around a year ago, many Tesla (NASDAQ:TSLA) skeptics have kept quiet. However, one longtime critic has come out of the woodwork with the popular EV play’s pullback during this bear market.
Analyst David Trainer recently presented his new bear case for TSLA stock to the investing public. In a nutshell, Trainer argues that, due to higher interest rates, Tesla shares will either go nowhere or fall lower, even as the underlying company continues to grow. Hence, his declaration of it as a “zombie stock.”
Despite holding onto its value much better than other “story stocks,” I wouldn’t dismiss Trainer’s argument that TSLA is one of the top stocks to sell. Shares could steadily move lower, cementing its status as an established automaker could reduce the company’s valuation premium over its “old school” competitors.
Uber Technologies (UBER)
Uber Technologies (NYSE:UBER), like other tech/growth stocks, has taken a big hit since the market downturn kicked off last November. Shares in the rideshare and meal delivery app operator have lost more than half their value during this timeframe.
Still, more downside may lie ahead for UBER stock. As I hinted at above, whereas Airbnb is profitable but overvalued, this particular “disruptor” is unprofitable and overvalued. Sell-side consensus doesn’t call for Uber to become profitable until at least 2024.
Based on long-term projections, Uber Technologies could (in theory) eventually have the profitability needed to move higher from current prices. The problem is that hitting such projections is debatable. Changes in labor laws that are more favorable to drivers could result in a big jump in operating costs. Consider UBER one of the stocks to sell at the risk of tumbling into the graveyard.
Upstart Holdings (UPST)
Upstart Holdings (NASDAQ:UPST) is another stock in the stock market graveyard. Over the past year, this fintech firm’s shares have fallen a staggering 93.5%. Since July, the stock has languished between $20 and $30 per share.
Indeed the situation can’t get worse for UPST stock, right? Not so fast. It makes sense why short interest in Upstart remains high (37.75% of float). As I have argued previously, the unfolding economic downturn could serve as a make-or-break test for this company’s loan underwriting platform (which uses algorithms powered by artificial intelligence or AI).
If Upstart’s underwriting method starts to have greater default rates than the traditional FICO method, it may mean “game over.” The company’s lending partners could lose faith in this would-be “disruptor,” causing its revenue and earnings to contract, possibly sending UPST on another double-digit move lower.
On the date of publication, Thomas Niel held a long position in BTC. He did not hold (either directly or indirectly) any other 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.