The strength in stock market indices in 2023 is masking the stocks to sell now. Investors may remain vigilant in noticing the stocks flash red flags after firms posted quarterly results.
Companies that reported a sharp drop in revenue are one of many major warning signs. Even if those stocks with bad fundamentals slumped after the earnings report, they risk having more downside ahead. Higher interest rates decrease an investor’s appetite for holding risky investments.
On May 3, 2023, the Federal Reserve issued a press release. It announced a decision to raise its target federal funds rate to 5 to 5-1/4 percent. Higher interest rates increase the attractiveness of holding risk-free cash equivalents.
Investors may buy money market funds that earn five percent. This guaranteed return is more appealing than stocks flashing major warning signs.
Investors have to watch out for three stocks with major warning signs.
| COIN | Coinbase | $57.44 |
| SOFI | SoFi Technologies | $5.44 |
| WOLF | Wolfspeed | $41.30 |
Coinbase (COIN)
Coinbase (NASDAQ:COIN), a cryptocurrency platform, posted a disturbing loss in revenue and a quarterly loss of 34 cents a share GAAP. Revenue fell by 33.4% Y/Y to $772.5 million.
COIN stock, which faces a bearish attack with a short interest of 19.8%, rose by 18.33% after the Q1/2023 report.
The unprofitable operations, falling revenue and increasing legal challenges are all warning flags. This is one of the stocks to sell now.
The company warned that expects higher general administrative expenses because of higher legal expenses.
Amid the rising costs and weakening business, Coinbase investors should not permit the firm to issue generous stock-based compensation. SBC was $199 million, albeit down by 54% Q/Q.
Still, compensation fell because of stock-based compensation recognition in Q4 2022 and fewer employees. Coinbase cut 20% of its staff in Jan. 2023.
Coinbase is challenging the SEC’s authority on deciding which tokens are securities. While it seeks regulatory clarity, this process adds substantial uncertainties to Coinbase.
SoFi Technologies (SOFI)
SoFi Technologies (NASDAQ:SOFI) traded with high unusual price volatility after posting Q1/2023 results. Despite posting record GAAP net revenue of $472 million, up by 43%, SOFI stock fell.
For Q2, SoFi issued revenue guidance above that of consensus. Its adjusted EBITDA is up to $60 million. For 2023, it expects revenue of up to $2.02 billion.
With the backdrop of a “run on the banks,” skeptical markets are wary about SoFi’s losses. They are unsure about the mark-to-market accounting rules. SoFi holds unsecured personal loans. Shareholders are not impressed with the record personal loan originations of $3 billion in Q1.
SoFi may have technology that automates and accelerates the application-to-approval process, but it is not immune to mark-to-market losses.
If the firm is unable to use the proceeds from the sale loans to fund new loans, its profit growth will slow.
Chief Financial Officer Chris Lapointe said that SoFi is well capitalized, after it raised $3.6 billion in 2021. It also has access to $8.6 billion. Those assurances failed to stop the selloff in SOFI shares post-earnings.
Wolfspeed (WOLF)
Wolfspeed (NYSE:WOLF) is a semiconductor manufacturer. The downtrend in WOLF stock started in September 2022 when shares traded at around $125. It closed at below $41 after posting weak guidance.
Wolfspeed blamed issues at its Mohawk Valley facility that delayed its ability to ramp its 200mm substrate capacity. The delay resulted in a lower fiscal 2024 revenue guidance, too.
Wolfspeed is one of the stocks to sell now. Investors are unhappy that a few quarters ago, the firm faced yield issues. Now, the 200-millimeter wafers have operational scaling delays.
Wolfspeed needs to navigate through supply chain issues with electrical infrastructure delays. In addition, this will slow its capacity for growth. Although the quality of crystals and wafer yields are good, the delay adds high uncertainties to the company’s business prospects.
Investors would rather own other semiconductor companies that do not have production delays. Chip companies that need only contend with weak demand are less risky. They may reduce supply and wait for demand to rebound.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
