The turmoil in the banking industry will likely lead the Fed to soften its monetary policy stance with small or no interest rate hikes at the monetary policy meeting scheduled this week. The Fed, however, is determined to fight inflation through interest rate increases, meaning that higher interest rates could return as soon as the banking crisis eases.
Amid this uncertainty, I think it could be wise for investors not to include fundamentally weak stocks Plug Power Inc. (PLUG), Virgin Galactic Holdings, Inc. (SPCE), and SNDL Inc. (SNDL) to their watchlists.
Before discussing why these stocks do not deserve to be on one’s watchlist, let me explain why the stock market is likely to remain volatile this year.
Inflation has cooled significantly from its 9.1% peak reached in June. The latest inflation numbers show that Consumer Price Index (CPI) rose 6% year-over-year and 0.4% sequentially in February. The monthly core inflation came higher than expected, as it inched up 0.5% on a monthly basis.
Inflation is still way above the Fed’s long-term target of 2%. February’s CPI data closely follows the February jobs report, which showed that the jobs market continues to remain strong with low unemployment rates and strong nonfarm payroll additions.
Moreover, the recent collapse of the Silicon Valley Bank and Signature Bank has put the banking system under severe stress. The financial regulators are trying to alleviate the stress by assuring depositors that their deposits are safe.
According to several Wall Street experts, the Federal Reserve will likely approve a quarter-percentage-point interest rate increase this week. On the other hand, many believe there could be no interest rate hikes. The stock market is concerned that these moves to arrest inflation will eventually take the economy into at least a shallow recession.
Amid this uncertainty, it could be wise for investors to avoid adding fundamentally weak stocks PLUG, SPCE, and SNDL to their watchlist.
Let’s take a closer look at why these stocks are likely to succumb under uncertain macroeconomic conditions.
Plug Power Inc. (PLUG)
PLUG delivers end-to-end clean hydrogen and zero-emissions fuel cell solutions for supply chain and logistics applications, on-road electric vehicles, stationary power markets, and others worldwide.
PLUG’s trailing-12-month gross profit margin of negative 23.89% compares to the 29.13% industry average. Its trailing-12-month levered FCF margin of negative 149.25% compares to the 4.24% industry average. Likewise, its trailing-12-month Return on Common Equity of negative 16.71% compares to the 13.83% industry average.
PLUG’s gross loss widened 13.5% year-over-year to $194.36 million for the fiscal year that ended December 31, 2022. The company’s operating loss widened 55.4% year-over-year to $679.55 million.
Its net loss attributable to common stockholders widened 57.4% year-over-year to $724 million. Moreover, its net loss per share widened 52.4% from the prior-year quarter to $1.25.
PLUG’s EPS for the quarter ending March 31, 2023, is expected to remain negative. The company has a bleak earnings surprise history, missing the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has fallen 60.5% to close the last trading session at $11.17.
PLUG’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of F, which translates to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Industrial - Equipment industry, it is ranked #84 out of 89 stocks. The stock has an F grade for Stability, Sentiment, and Quality and a D for Value.
In total, we rate PLUG on eight different levels. Beyond what we stated above, we have also given PLUG grades for Growth and Momentum. Click here to access all the ratings.
Virgin Galactic Holdings, Inc. (SPCE)
SPCE focuses on the development, manufacture, and operation of spaceships and related technologies for conducting commercial human spaceflight and flying commercial research and development payloads into space. It is also involved in the ground and flight testing and post-flight maintenance of its spaceflight system vehicles.
SPCE’s trailing-12-month Return on Common Equity of negative 72.78% compares to the 13.83% industry average. Its trailing-12-month Return on Total Assets of negative 43.88% compares to the 5.24% industry average. Likewise, its 17.56% trailing-12-month gross profit margin is 39.7% lower than the 29.13% industry average.
SPCE’s operating loss widened 88.6% year-over-year to $153.31 million for the fourth quarter that ended December 31, 2022. The company’s net loss widened 86.7% year-over-year to $150.82 million.
Its adjusted EBITDA loss widened 104.9% from the prior-year period to $132.75 million. Additionally, its net loss per share came in at $0.55, representing a 77.4% increase from the year-ago period.
SPCE's EPS for the quarter ending March 31, 2023, is expected to remain negative. The company has a grim earnings surprise history, missing the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has fallen 53.7% to close the last trading session at $4.16.
SPCE’s POWR Ratings reflect bleak prospects. It has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
It has an F grade for Stability and Sentiment and a D for Value and Quality. Within the Airlines industry, it is ranked last of 27 stocks.
We have also given SPCE grades for Growth and Momentum. Get all SPCE ratings here.
SNDL Inc. (SNDL)
Headquartered in Calgary, Canada, SNDL engages in the production, distribution, and sale of cannabis products in Canada. The company operates through Cannabis Operations and Retail Operations segments.
In terms of the trailing-12-month gross profit margin, SNDL’s 19.07% is 65.7% lower than the 55.66% industry average. Its 0.30x trailing-12-month asset turnover ratio is 11% lower than the 0.34x industry average. Likewise, its 1.51% trailing-12-month Capex/Sales is 67.5% lower than the 4.64% industry average.
For the fiscal third quarter that ended September 30, 2022, SNDL’s loss from operations widened 365% year-over-year to CA$88.54 million ($64.46 million). Its net loss attributable to owners of the company came in at CA$98.11 million ($71.43 million), compared to a net income of $16.71 million in the prior-year period.
Its net loss per common share attributable to owners of the company came in at CA$0.41, compared to a net income per common share of $0.08 in the year-ago period.
Analysts expect its EPS for the fiscal year 2022 to remain negative. It has a bleak earnings surprise history, missing the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has fallen 69% to close the last trading session at $1.56.
SNDL’s grim prospects are reflected in its POWR Ratings. It has an overall rating of D, which translates to Sell in our proprietary rating system.
It is ranked #130 out of 166 stocks in the D-rated Medical - Pharmaceuticals industry. SNDL has an F grade for Momentum and Stability and a D for Sentiment and Quality. Click here to see the additional ratings of SNDL for Growth and Value.
Consider This Before Placing Your Next Trade…
We are still in the midst of a bear market.
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PLUG shares were trading at $11.39 per share on Monday morning, up $0.22 (+1.97%). Year-to-date, PLUG has declined -7.92%, versus a 2.63% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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