The stock market has been experiencing wild swings this year, with inflation at a multi-decade high and the Fed aggressively raising interest rates to bring it under control. Amid rising recession worries, we think fundamentally weak stocks, Advanced Micro Devices (AMD), Block (SQ), Ginkgo Bioworks (DNA), Rocket Lab USA (RKLB), and Cassava Sciences (SAVA) are best removed from your watchlist. Keep Reading….
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The stock market started the week on a high note with two rip-roaring rallies, and the S&P 500 witnessed its best day since 2020 on Tuesday. However, the momentum did not sustain. On the other hand, Minneapolis Federal Reserve President Neel Kashkari said that the central bank is quite away from stopping rate hikes to fight inflation.
“Until I see some evidence that underlying inflation has solidly peaked and is hopefully headed back down, I’m not ready to declare a pause. I think we’re quite a ways away from a pause,” he said.
Americans are finding it difficult to stay financially disciplined amid the rising recession fears following two years of economic uncertainty. The stock market turmoil has already wiped out more than $9 trillion in wealth from U.S. households. Americans have “recession fatigue,” says Bankrate.com analyst Sarah Foster.
Given this backdrop, we think fundamentally weak stocks Advanced Micro Devices, Inc. (AMD), Block, Inc. (SQ), Ginkgo Bioworks Holdings, Inc. (DNA), Rocket Lab USA, Inc. (RKLB), and Cassava Sciences, Inc. (SAVA) might be best avoided now.
Advanced Micro Devices, Inc. (AMD)
AMD is a global semiconductor company. It operates through two segments: Computing and Graphics; and Enterprise, Embedded, and Semi-Custom. The Computing and Graphics segment includes desktop and notebook microprocessors, accelerated processing units, chipsets, GPUs, data centers, etc. The Enterprise, Embedded, and Semi-Custom segment include server and embedded processors, semi-custom system-on-chip (SoC) products, etc.
AMD’s operating income declined 36.7% year-over-year to $526 million for the second quarter that ended June 25, 2022. Its net income reduced 37% year-over-year to $447 million, while its EPS came in at $0.27, down 53.4% year-over-year.
Analysts expect AMD’s EPS for the quarter ending March 2023 to decline 5.2% year-over-year to $1.07.
In terms of its forward EV/Sales, AMD is currently trading at 4.09x, 58.5% higher than the industry average of 2.58x. Its forward Price/Sales multiple of 4.20 is 60.1% higher than the industry average of 2.62.
The stock has declined 52.8% year-to-date and 33.3% over the past year to close the last trading session at $67.85.
AMD’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of D, which translates to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a D grade for Stability. It is ranked #83 out of 92 stocks in the Semiconductor & Wireless Chip industry.
Click here to see the other ratings of AMD for Growth, Value, Momentum, Sentiment, and Quality.
Block, Inc. (SQ)
SQ, a technology company, creates tools to enable businesses, sellers, and individuals to participate in the digital economy. It operates through two segments- Square and Cash App. The company provides hardware products, including Magstripe reader, Contactless and chip reader, Square Stand, and Square Register. Its software products include Square Point of Sale, Square Appointments, Square for Retail, Square for Restaurants, and Square Online, among others.
SQ’s net revenue declined 5.9% year-over-year to $4.40 billion for the second quarter of fiscal 2022 ended June 30. The company reported an operating loss of $213.77 million for the quarter, compared to $124.99 million in the year-ago period. Its adjusted EBITDA declined 47.9% year-over-year to $187.34 million. In addition, the company reported an adjusted net income and adjusted net income per share of $110.74 million and $0.36, down 56.8% and 63.3% year-over-year, respectively.
Street expects SQ’s revenue for the fiscal year ending December 2022 to decrease marginally year-over-year to $17.55 billion. The company’s EPS for the current year is expected to decline 48.8% year-over-year to $0.88.
SQ’s forward non-GAAP P/E multiple of 70.93 is 303.9% higher than the industry average of 17.56. In terms of its forward non-GAAP PEG, the stock is trading at 5.13x, 260.4% higher than the industry average of 1.42x.
The stock has plunged 73.7% over the past year and 61.5% year-to-date to close the last trading session at $61.93.
SQ’s POWR Ratings are consistent with its weak performance and bleak outlook. The stock has an overall D rating, equating to a Sell in our proprietary rating system.
It also has a D grade for Stability, Sentiment, and Quality. Out of 103 stocks in the F-rated Financial Services (Enterprise) industry, it is ranked #89.
To access additional ratings for SQ’s Growth, Momentum, and Value, click here.
Ginkgo Bioworks Holdings, Inc. (DNA)
DNA develops platform for cell programming to enable the biological production of products such as novel therapeutics, food ingredients, and chemicals derived from petroleum. The company serves various markets, including specialty chemicals, agriculture, food, consumer products, and pharmaceuticals.
DNA’s total operating expenses increased 664.2% year-over-year to $791.53 million in the second quarter ended June 30, 2022. The company’s loss from operations widened 979.2% year-over-year to $646.91 million, while its net loss came in at $668.83 million. Also, the loss per share increased 925% year-over-year to $0.41.
The consensus EPS estimate of negative $0.24 for the quarter ended September 2022 represents a 202.5% year-over-year decline. The consensus revenue estimate of $57.65 million indicates a decrease of 25.7% year-over-year in the same period.
In terms of its forward Price/Sales, DNA is currently trading at 13.30x, 1,128.6% higher than the industry average of 1.08x. Its forward EV/Sales multiple of 11.14 is 723.7% higher than the industry average of 1.35.
DNA’s stock has declined 72.4% in price over the past year and 60.2% year-to-date to close the last trading session at $3.23.
DNA has an overall F rating, equating to a Strong Sell in our POWR Ratings system.
It also has an F grade for Stability and Sentiment and a D for Growth, Value, and Quality. In the F-rated 387 stock Biotech industry, DNA is ranked last.
Click here to access DNA’s ratings for Momentum.
Rocket Lab USA, Inc. (RKLB)
RKLB, a Space company in Long Beach, Calif., operates as a provider of launch services and space system solutions for the defense and space industries. The company’s offerings include spacecraft engineering and design services, spacecraft components, and the design and manufacture of small- and medium-class rockets.
For its fiscal second quarter ended June 30, RKLB’s operating expenses increased 144.4% year-over-year to $38.12 million. Its net loss rose 124.5% from the prior-year quarter to $37.42 million, while the net loss per share attributable to RKLB came in at $0.08. Also, its operating loss increased 152.5% from the same period the prior year to $33.16 million.
RKLB’s EPS is expected to remain negative in the ongoing fiscal year. RKLB’s stock has declined 68.4% over the past year and 62.5% year-to-date to close the last trading session at $4.62.
In terms of its forward Price/Sales, RKLB is currently trading at 9.47x, 698.1% higher than the industry average of 1.19x. Its forward Price/Book multiple of 3.26 is 37.1% higher than the industry average of 2.38.
It is no surprise that RKLB has an overall F rating, which equates to a Strong Sell in our proprietary rating system.
RKLB has a Value, Stability, and Quality grade of F. In the 74-stock Air/Defense Services industry, it is ranked #71.
Beyond what is stated above, we have also rated RKLB for Growth, Momentum, and Sentiment. Click here to see the POWR Ratings for RKLB.
Cassava Sciences, Inc. (SAVA)
SAVA, a clinical-stage biotechnology company, develops drugs for neurodegenerative diseases. Its lead therapeutic product candidate is Simufilam, a small molecule drug, which has completed Phase 2b clinical trial; and its investigational diagnostic product candidate is SavaDx, a blood-based biomarker/diagnostic to detect Alzheimer’s disease.
SAVA’s did not report any revenue in the second quarter ended June 30, 2022, while its operating loss increased 287.6% year-over-year to $19.92 million. The company’s net loss widened 277.1% year-over-year to $19.33 million, and its net loss per share came in at $0.48, up 269.2% from the prior-year quarter.
Analysts expect SQ’s EPS for the fiscal quarter ended September 2022 to decrease 112.5% year-over-year to negative $0.51. The company’s revenue for the same period is expected to remain nil.
SQ’s forward Price/Book multiple of 9.04 is 251.9% higher than the industry average of 2.57.
Over the past year, the stock has slumped 28.3% to close the last trading session at $42.35.
SAVA’s poor prospects are reflected in its POWR Ratings. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.
It also has an F grade for Growth and a D for Momentum, Sentiment, Stability, and Quality. It is ranked #374 in the Biotech industry.
In addition to the POWR Rating grades stated above, one can see SAVA ratings for Value here.
AMD shares fell $4.10 (-6.04%) in premarket trading Friday. Year-to-date, AMD has declined -55.73%, versus a -21.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal’s passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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