At a time when most stocks are falling and very few are rallying, one way investors can make money is by shorting stocks. Even though the market — amid fears of continued high inflation, rising interest rates and slowing growth — has thrown out much of the bathwater (along with some babies), there’s still some dirty water remaining. In other words, there are still many highly overvalued companies that will have trouble staying afloat, giving investors a multitude of good stocks to short.
A number of Cathie Wood’s favorites and former favorites, for example, continue to generate rising losses and have excessive valuations.
And although most pandemic-era darlings have cratered, some are still way too expensive. Meanwhile, cryptocurrencies have tumbled and are likely to sink much further. The stocks of firms whose business rely, partially or completely, on cryptos will probably plunge during the rest of this year.
Below are the seven stocks to short if you have the risk tolerance for it.
Despite all the accolades for tech and analytics company Palantir (NYSE:PLTR), the company continues to be unprofitable. Its loss from operations in the first quarter came in at a steep $39 million, while its operating margin was -9%. Moreover, Palantir provided Q2 revenue guidance that was below analysts’ mean outlook.
Another negative development for Palantir was the decision by Cathie Wood, once a big cheerleader for PLTR stock, to sell all of her firm’s shares of the company. Meanwhile, RBC Capital lowered its rating on the name to “underperform” from “sector perform” in the wake of the company’s Q1 results. The firm was unhappy with the company’s guidance and reported that the company’s growth rate fell “for the fourth consecutive quarter” in Q1, Seeking Alpha reported. Finally, RBC is not sure if Palantir will meet its 30% year-over-year revenue growth guidance for 2022.
Despite all of these issues and the fact that Palantir’s share price sounds low (it was trading around $7.82 on the afternoon of June 14),the shares still have a rather high trailing price-revenue ratio of 9.6.
As I pointed out in a May 6 column, SoFi (NASDAQ:SOFI) and SOFI stock are being hurt by the federal government’s moratorium on student-loan payments. And with the company itself saying that the moratorium is likely to last until after the U.S. election in November, that pain for SoFi will remain for at least another five months.
Meanwhile, for a variety of reasons, including stepped-up competition from Apple (NASDAQ:AAPL) and the plunge of crypto, the Street has become very bearish on fintech names.
Speaking of cryptos, there’s a meaningful amount of evidence that SoFi, which caters to young people, has made a significant amount of money by facilitating crypto trades in the past. With the value of most cryptos continuing to tumble, that revenue stream is likely to mostly dry up for SoFi.
SoFi remains in the red, as its net loss from continuing operations came in at $30 million last quarter. And despite all of SoFi’s issues, SOFI stock is trading at a rather elevated trailing price-sales ratio of 8.6.
The FDA on May 23 lifted a clinical hold on Covaxin, a coronavirus vaccine that was developed by biotech Ocugen’s (NASDAQ:OCGN) partner, India’s Bharat Biotech. Following the agency’s decision, Ocugen can resume its Phase 2/3 trials of the vaccine.
But, in the best-case scenario, it will likely be six months or more until the clinical trials are over, an additional couple of months before Ocugen submits the data to the FDA, and another few months before the agency acts on the application.
Ocugen received the right to co-commercialize Covaxin in Mexico and obtain 45% of the profits generated by the shot there. And Covaxin has been approved for adults in Mexico. But 61% of Mexican adults had already been vaccinated as of mid-May and Covaxin has not yet been approved for children in the country.
Moreover, a total of 10 coronavirus shots have already been authorized for adults in Mexico. The total population of the country as of last year was estimated to be 130 million.
The drugs that Ocugen is developing on its own are still in the initial phases of clinical testing and likely won’t be submitted to the FDA approval for at least a few years. Yet the market capitalization of OCGN stock still exceeds $400 million.
Continuing the trend that Matterport (NASDAQ:MTTR) has experienced in recent quarters, the company reported strong subscriber growth but a weak revenue increase in Q1. The company’s subscriber base jumped 70% year-over-year, but its overall top line climbed just 6% YOY.
Matterport sells products that create digital replicas of physical spaces, and many of its customers are real estate agents.
As I noted in a previous column, the company’s anemic revenue increases suggest that its competition has become very tough and that the overall demand for its products is not as strong as the MTTR stock bulls believed.
And now, with the residential real estate market cooling off rapidly, Matterport’s growth and profitability are likely to sink sharply.
So it’s not surprising that, at the midpoint of its full-year revenue guidance range, issued in May, Matterport expects its top line to climb an underwhelming 17%. Even more discouragingly, if the company attains the midpoint of its Q2 top-line guidance, its sales would drop slightly versus the same period a year earlier.
And given the state of the housing market, the company’s actual revenue will probably come in below the midpoint of its guidance. Meanwhile, Matterport expects to report losses for both Q2 and its full year, while the stock’s trailing price-sales ratio is a very steep 13.6.
Coinbase Global (COIN)
In line with my predictions since last summer, the value of cryptocurrencies has tumbled since Congress and the Federal REserve have withdrawn a great deal of stimulus from the economy. For example, Bitcoin (BTC-USD) has sunk 50% so far this year, and Ethereum (ETH-USD) has given back 67%.
As a result of the cryptos’ collapse, the crypto bulls’ belief that the currencies would be good hedges against inflation has been shattered.
Because of decreased enthusiasm about cryptos, Coinbase’s (NASDAQ:COIN) financial results have plummeted. Indeed, the company’s top line sank 36% YOY in Q1, while it lost $1.98 per share. Also discouraging are Coinbase’s warning of additional slumps “in trading volume” in Q2,the company’s hiring freeze, and the large-scale selling of COIN stock by several of the company’s top executives.
And in the most recent bad news for Coinbase, a number of people claiming to be employees of the company called for three of its top executives to step down, citing “plans and ideas that have led to questionable results and negative value.” Among the failures named by the critics were what they see as the company’s ineffective NFT initiatives and its unjustified hiring of “thousands of” employees. .
Given all of Coinbase’s problems and challenges, the $12 billion enterprise value of COIN stock is way too high.
In Q1, FuboTV (NYSE:FUBO) delivered a typical performance: strong revenue and subscriber growth, along with a huge surge in its operating expenses and a gigantic increase in its net loss. Additionally, Fubo’s growth slowed markedly last quarter.
In Q1, Fubo’s total operating expenses soared to $377 million from $185 million during the same period a year earlier. As a result, its operating loss more than doubled YOY to $135 million. Notably, the company’s sales and marketing expenditures soared to $46 million from $22 million in Q1 of 2021.
I’m convinced that Fubo has needed to greatly increase its sales and marketing spending because its value proposition is not impressive. Specifically, the company’s TV package is not significantly cheaper than cable, making it unappealing to many if not most cord cutters.
With economic growth having slowed meaningfully and inflation having taken a big bite out of some consumers’ budgets, those metrics are likely to continue decelerating.
In Q1, Fubo burned $127 million of cash, and it had $451 million of cash at the end of the quarter, along with $444 million of debt. As a result, it appears that Fubo will have four unappealing choices in the coming quarters: Radically cut its spending, issue many more shares of FUBO stock, declare bankruptcy or sell itself for cheap.
Riot Blockchain (RIOT)
Riot Blockchain (RIOT) “focuses on bitcoin mining operations in North America.” And at the end of 2021, it “operated approximately 30,907 miners.”
With the value of Bitcoin plunging, Riot’s top and bottom lines are also going to eventually tumble.
RIOT stock moves in tandem with Bitcoin prices. As I mentioned earlier, Bitcoin has retreated 50% in 2022. For its part, RIOT stock has sunk 78% this year. And in the last three months, Bitcoin has given back 31%, while Riot’s shares have fallen 66% So it appears that shorting Riot is basically a way to short Bitcoin with roughly two times the leverage.
And my thesis about cryptos falling as the government’s stimulus is withdrawn has been proven to be correct. Consequently, there’s an excellent chance that Bitcoin will drop further as the Fed shrinks its balance sheet in the coming weeks and months.
Additionally, earlier this month, New York’s lawmakers “passed a bill to ban certain bitcoin mining operations that run on carbon-based power sources.” Other state legislatures could soon follow suit.
Meanwhile, senators introduced bipartisan legislation that would “designate the Commodity Futures Trading Commission as the regulatory agency with spot market jurisdiction over all fungible digital assets that are not securities.”
In other words, if the bill passes, most cryptos would be regulated by the CFTC,
That’s very bad news for Riot, and it makes Riot an excellent pick among these stocks to short.
On the date of publication, Larry Ramer was short OCGN stock.