As the Fed’s rate hikes are expected to continue, the odds of a recession this year are rising. Amid lingering macroeconomic headwinds, fundamentally weak stocks Aurora (AUR), Hut 8 (HUT), and AppHarvest (APPH) might be best avoided. These stocks look overvalued at their current prices. Keep reading.
Amidst a steady labor market, high-interest rates, and high inflation, recessionary fears are over the roof. Hence, I think it might be best to steer clear of Aurora Innovation, Inc. (AUR), Hut 8 Mining Corp. (HUT), and AppHarvest, Inc. (APPH), which have plunged significantly over the past months.
The Labor Department reported that the initial claims for state unemployment benefits increased by 7,000 to a seasonally adjusted 198,000 for the week ended March 25, 2023. Economists polled by Reuters had forecast 196,000 claims for the latest week. Claims have stayed low despite layoffs in the technology industry.
Also, the Federal Reserve has increased benchmark interest rate for the ninth time this month in an attempt to control the high inflation. The Federal Reserve’s Chairman, Jerome Powell, has stated that the central bank may consider additional rate hikes if inflation remains persistently high. Inflation is still significantly above the Fed’s target of 2%.
To add to that, St. Louis Fed President James Bullard recently stated that due to the quick response from U.S. regulators in easing stress in the banking sector, along with stronger-than-expected economic growth and inflation, the Federal Reserve might need to raise interest rates more than originally anticipated.
Furthermore, Doubleline Capital founder Jeffrey Gundlach said on CNBC that he expects a US recession to start in a few months and that the Federal Reserve will need to respond “very dramatically.” “The economic headwinds are building, we’ve been talking about this for a while, and I think the recession is here in a few months,” Gundlach said.
Amid this backdrop, it could be best to avoid the stocks discussed below:
Aurora Innovation, Inc. (AUR)
AUR is a self-driving technology company focusing on developing Aurora Driver, a platform that provides a suite of self-driving hardware, software, and data services to adapt and interoperate light commercial vehicles and trucks.
AUR’s forward EV/Sales and P/S multiples of 582.61 and 1547.61 are significantly higher than their respective industry averages of 1.61 and 1.28.
During the fiscal year that ended December 31, 2022, total operating expenses rose 136.2% year-over-year to $1.92 billion. Its collaboration revenue declined 17.1% year-over-year to $68 million. Its loss from operation rose 153.4% year-over-year to $1.85 billion.
Moreover, AUR’s net loss rose 128.2% year-over-year to $1.72 billion, and net loss per share grew 23.8% from the prior-year quarter to $1.51.
Analysts expect AUR’s loss per share to rise 91.8% year-over-year to $0.76 in the current fiscal year 2023. Its revenue is expected to decline 98.5% year-over-year to $1 million in the current year.
The stock has declined 39.4% over the past six months and 14.1% over the past month to close its last trading session at $1.34. AUR has a 24-month beta of 2.28.
This bleak outlook is reflected in AUR’s POWR Ratings. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.
AUR is graded an F in Value and Growth and a D in Quality and Stability. It is ranked #78 out of the 81 stocks in the Technology – Services industry.
In addition to the POWR Rating grades stated above, one can see AUR’s ratings for Momentum and Sentiment here.
Hut 8 Mining Corp. (HUT)
Headquartered in Toronto, Canada, HUT is a bitcoin mining company with industrial-scale operations. The company utilizes specialized equipment to solve computational problems to validate transactions on the bitcoin blockchain and provides hosting services to institutional clients.
In terms of forward P/S, HUT’s 5.59x is 106.6% higher than the 2.70x industry average. Its 5.77x forward EV/S is 109.1% higher than the 2.76x industry average.
During the fiscal fourth quarter that ended December 31, 2022, HUT’s total revenue rose 62.3% year-over-year to CAD21.83 million ($16.11 million). Its net loss increased 67.7% year-over-year to CAD186.67 million ($$137.82 million). Its mining profit declined 91.5% year-over-year to CAD3.33 million ($2.46 million).
Moreover, its adjusted EBITDA declined 111.1% from the prior-year quarter to negative CAD3.92 million ($2.89 million). Its net income per share rose 34.3% year-over-year to CAD0.90.
HUT’s revenue is expected to decline 62.5% year-over-year to $15.32 million in the current quarter ending March 2023. The company has failed to surpass the revenue estimates in each of the trailing four quarters and EPS estimates in three of the trailing four quarters.
The stock has plummeted 70% over the past year to close its last trading session at $1.74. It has a 24-month beta of 4.09.
HUT’s weak prospects are reflected in its POWR Ratings. The stock has an overall rating of F, equating to a Strong Sell in our proprietary rating system.
It has an F grade for Value, Growth, and Sentiment and a grade of D for Stability, Momentum, and Quality. It is ranked last among 102 stocks in the Financial Services (Enterprise) industry.
Click here to see HUT’s POWR Ratings.
AppHarvest, Inc. (APPH)
APPH is an applied agricultural technology company that develops and operates indoor farms with robotics and artificial intelligence to build climate-resilient food system.
APPH’s forward EV/Sales multiple of 7.47 is 350.1% higher than the 1.66 industry average. Its 2.14x forward P/S is 93% higher than the industry average of 1.11x
APPH’s gross loss rose 113% year-over-year to $18.90 million. Its net loss increased 5.6% year-over-year to $93.32 million. Its net loss per share came in at $0.86. The company’s comprehensive loss increased 6.3% year-over-year to $93.25 million.
APPH’s EPS is expected to come in at negative $0.22 in the current fiscal quarter ending March. Also, its EPS is expected to remain negative in the current fiscal year 2023.
Over the past year, the stock has lost 88.7% over the past year to close the last trading session at $0.61. Its 24-month beta is 1.99.
APPH’s POWR Ratings are consistent with this grim outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.
In addition, the stock has an F grade for Value, Stability, and Quality and a D for Momentum and Sentiment. Among the 82 stocks in the Food Makers industry, the stock is ranked last.
To access APPH’s Growth grades, click here.
Consider This Before Placing Your Next Trade…
We are still in the midst of a bear market.
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You owe it to yourself to watch this timely presentation before placing your next trade.
AUR shares fell $1.34 (-100.00%) in premarket trading Friday. Year-to-date, AUR has gained 10.74%, versus a 5.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor’s degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.