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September 01, 2020 1:20pm
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2 Brutal Sell-off Stocks to Avoid This Fall

The Fed seems to be gearing up to respond to hotter-than-expected inflation and employment data for September with further aggressive interest rate hikes. Hence, with market volatility set to become more severe, fundamentally weak stocks Coinbase Global (COIN) and DraftKings (DKNG) are best avoided now. Read on…

The 8.2% year-over-year increase in September’s Consumer Price Index (CPI) and hotter-than-expected employment data have raised the odds of the Fed responding with a fourth consecutive 75-bps rate hike in its November meeting. The economy is expected to soon slip into a recession as the central bank continues to stay committed to its inflation-fight measures.

“The likelihood of a recession is 99.9%,” said Earl Davis, Head of Fixed Income at Bank of Montreal’s fund management division, citing that interest rates will have to rise much higher to quell inflation.

Heavy selling recently rocked the stock market as investors brace for more pain. As a result, major market indices suffered huge losses, with the S&P 500 and the Nasdaq Composite declining more than 22% and 30%, respectively.

Given such uncertain market conditions, investors are advised to let go of fundamentally weak and beaten-down stocks Coinbase Global, Inc. (COIN) and DraftKings Inc. (DKNG).

Coinbase Global, Inc. (COIN)

COIN is a fintech company that provides end-to-end financial infrastructure and technology for the global crypto economy. The company offers financial accounts for retail crypto users, a liquid marketplace to institutions for crypto transactions, and technology and services for ecosystem partners.

On October 17, it was revealed that COIN is considering suing 1000 users in the republic of Georgia for taking advantage of a pricing glitch when the lari, the local currency, was priced at $290 rather than $2.90 for about six hours on COIN. The incident illustrates a longstanding concern of financial regulators regarding the risks posed to institutions by external partnerships.

On September 12, reports emerged that the brother of a former COIN product manager pleaded guilty to a wire fraud conspiracy charge when prosecutors called the first insider trading case involving cryptocurrency.

In June, COIN announced an 18% reduction in its workforce by laying off approximately 1,100 employees. It came as volatile crypto markets have lost more than $2 trillion in valuation since 2021, and COIN CEO, Brian Armstrong, warned of a recession and a crypto winter on the horizon.

In the fiscal 2022 second quarter ended June 30, COIN’s total revenue decreased 63.7% year-over-year to $808.33 million. During the same period, the company reported an operating loss of $1.04 billion, compared to an income of $874.73 in the previous-year period.

In addition, COIN’s net loss attributable to common shareholders came in at $1.1 billion and $4.98 per share, compared to a net income of $1.59 billion and $6.42 per share in the previous-year quarter, respectively.

Analysts expect COIN’s revenue for the fiscal year ending December 2022 to decline 57.3% year-over-year to $3.35 billion. Also, the company’s loss per share for the current year is expected to come in at $6.61, compared to EPS of $17.10 in the previous year.

The stock has plunged 12.4% over the past month and 74.8% year-to-date to close the last trading session at $63.19.

It’s no surprise that COIN has an overall rating of F, which translates to a Strong Sell in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

COIN also has a grade of F for Growth, Value, Stability, and Sentiment and a D for Momentum and Quality.

It is ranked last among 147 stocks in the F-rated Software – Application industry.

DraftKings Inc. (DKNG)

DKNG operates as a digital sports entertainment and gaming company. The company offers multi-channel sports betting and gaming technologies, powering sports and gaming entertainment for operators across 17 countries.

For the second quarter of the fiscal year 2022 ended June 30, DKNG’s adjusted EBITDA deteriorated 24% year-over-year to negative $118.13 million. The company reported a loss from operations of $308.92 million during the same period. Its net loss attributable to common stockholders came in at $217.10 million, translating to a loss of $0.50 per share.

Analysts expect DKNG to report a loss of $0.50 per share during the fourth quarter of the current fiscal, ending December 2022. The company is expected to keep reporting losses for at least two fiscal years.

The stock has plummeted 29.7% over the past month and 52.7% over the past year to close the last trading session at $13.14

DKNG has an overall rating of F, which equates to a Strong Sell in our POWR Ratings system. It also has a grade of F for Stability and Quality and a D for Value and Sentiment.

DKNG is ranked penultimate among 27 stocks in the D-rated Entertainment – Casinos/Gambling industry. 

Click here to see the additional POWR Ratings for DKNG (Growth and Momentum).

COIN shares were trading at $66.24 per share on Thursday morning, up $3.05 (+4.83%). Year-to-date, COIN has declined -73.75%, versus a -20.91% rise in the benchmark S&P 500 index during the same period.

About the Author: Santanu Roy

Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.


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