3 stocks to avoid when the Fed raises interest rates

The stock market saw a noticeable change in the first half of 2022, driven by record inflation and a significant rise in interest rates. The consumer price index (CPI) is accelerating 9.1% year over year in June, beating the Dow Jones estimate of 8.8% and marking the fastest pace of inflation since November 1981.

Moreover, the persistence of high inflation prompted the Federal Reserve to adopt a more hawkish stance on monetary policy. The central bank has raised benchmark interest rates four times this year, the last two reaching 75 basis points. Rising rates have increased borrowing costs for businesses, causing the economy to contract for two consecutive quarters.

Solid employment data and other positive economic indicators could encourage the Fed to consider larger interest rate hikes, further increasing borrowing costs.

Thus, we believe that the shares of Carvana Co. (CVNA), Redfin Corporation (RDFN) and Bed Bath & Beyond Inc. (BBBY), which should still be affected by rising borrowing costs, are best avoided now.

Carvana Co. (CVNA)

CVNA operates an e-commerce platform for buying and selling used cars in the United States. The Company’s platform enables customers to search and identify a vehicle, inspect it using its 360-degree imaging technology, obtain financing and warranty coverage, purchase the vehicle and schedule delivery or pickup from their electronic devices.

On April 28, CVNA increased the size of the previously announced offering by $2.28 billion and priced the private placement of $3.28 billion for an aggregate amount of its senior unsecured notes at 10.25% due 2030. The Notes will bear interest at a rate of 10.25% per annum. , payable semi-annually on May 1 and November 1. The note offering is expected to increase the company’s debt and interest.

For its second quarter of fiscal 2022 ended June 30, 2022, CVNA gross profit fell 28.3% year-over-year to $396 million. The company’s selling, general and administrative expenses were $721 million, up 53.4% ​​year-over-year. Its adjusted EBITDA loss was $239 million, compared to a $112 million gain in the prior year period.

In addition, the company’s net loss and loss per Class A common share were $439 million and $2.35, worsening by 1,075.6% and 1,003.9%, respectively. one year to the next.

Analysts expect the loss per share to increase 388.4% from the year-ago period to $1.86 in the third quarter of fiscal 2022 (ending September 2022). Additionally, the consensus estimate of loss per share of $7.67 for the current year (ending December 2022) reflects a deterioration of 370.6% year over year.

The stock is down 67.9% in the past six months and 80.4% since the start of the year to close the last trading session at $46.98.

CVNA POWR Rankings fit into these gloomy prospects. The company has an overall rating of F, which translates to a strong sell in our proprietary rating system.

CVNA has a rating of F for Sentiment, Quality, Stability and Growth. In category F the Internet industry, it is ranked No. 66 out of 66 stocks. Click here to see CVNA’s POWR rating for momentum and value.

Redfin Company (RDFN)

RDFN is a residential real estate brokerage firm that operates in the United States and Canada. The Company operates an online real estate marketplace and provides real estate services, such as assisting individuals in buying or selling homes and title and settlement services. In addition, the company originates and sells mortgages.

During the second quarter of fiscal 2022 ended June 30, 2022, RDFN’s gross profit decreased 6.5% year-over-year to $118 million. Its operating expenses rose 23.1% year over year to $192.66 million. The company’s operating loss increased 146.3% from the previous year’s value to $74.66 million.

Additionally, RDFN’s Adjusted EBITDA loss was $28.60 million, compared to Adjusted EBITDA income of $2.8 million in the prior year period. The company’s net loss was $78.15 million, worsening 180.3% year-on-year. Its net loss per share attributable to common stock rose 151.7% from a year earlier at $0.73.

The consensus estimate of revenue of $595.09 million for the fourth quarter of fiscal 2022, ending December 2022, represents a decrease of 7.5% compared to the same period in 2021. The consensus estimate of the loss per share of $0.41 for the same quarter represents a widening of 53.2% year-on-year. Additionally, the company has missed consensus EPS estimates in each of the past four quarters.

The stock is down 73.3% year-to-date and 82.9% over the past year to close last trading session at $10.38.

RDFN’s POWR ratings reflect this poor outlook. The stock’s overall F rating translates to a strong sell in our proprietary rating system.

RDFN has an F rating for feeling and stability. It has a D for Quality. In category F Real estate services industry, it is ranked #42 out of 43 stocks. Click here to access additional POWR (Growth, Value, and Dynamics) ratings for RDFN.

Bed Bath & Beyond Inc. (BBBY)

BBBY operates a chain of retail stores. The company sells a range of household goods, home furnishings and other children’s products. The company has more than 953 stores and offers its products on various websites and apps, including bedbathandbeyond.com, bedbathandbeyond.ca, facevalues.com, buybuybaby.ca and decorist.com.

BBBY’s first quarter fiscal 2022 results were negatively impacted by continued macroeconomic headwinds. The company’s interim CEO, Sue Gove, said: “During the quarter, there was a sharp shift in customer sentiment, and since then the pressures have intensified significantly. This includes high inflation and fluctuations in buying patterns, resulting in significant disruption to our sales and inventory.

During the first fiscal quarter ended May 28, 2022, BBBY’s net sales fell 25.1% year-over-year to $1.46 billion, and its gross profit fell 44.9 % over the previous year’s value at $349.31 million. Its operating loss rose 371.9% year-over-year to $339.16 million. Its adjusted EBITDA loss was $223.54 million, compared to a gain of $86.07 million recorded in the prior year period.

Additionally, the company’s net loss and loss per share were $357.67 million and $4.49, up 603% and 835.4% year-on-year, respectively.

The company’s revenue for the third quarter of fiscal 2023 (ending November 2023) is expected to decline 13% from the same period in 2021. Additionally, analysts expect the loss per share of BBBY for the same quarter worsens 351.9% year-over-year to $1.13. . The company has failed to beat consensus revenue estimates in three of the past four quarters.

Shares of BBBY have plunged 49.9% in the past six months and 46.2% since the start of the year to close the last trading session at $8.16.

BBBY’s POWR ratings are consistent with this bleak outlook. The stock’s overall D rating translates to a sell in our proprietary rating system.

BBBY has an F rating for stability and sentiment. The stock has a D rating for growth and momentum. Within the Home improvement and goods industry, it is ranked No. 59 out of 62 stocks. To see the additional POWR ratings (value) for BBBY, Click here.

CVNA shares were trading at $46.55 per share Monday morning, down $0.43 (-0.92%). Year-to-date, CVNA is down -79.92%, compared to a -12.01% rise in the benchmark S&P 500 over the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using its fundamental approach to stock analysis, Mangeet seeks to help retail investors understand the underlying factors before making investment decisions. After…

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