2 inventory losses to keep away from in 2023

  • 2022 was a brutal year for the S&P 500, and it’s down nearly 20% year-to-date
  • A triple whammy of rising interest rates, rising inflation and recession fears hit growth stocks
  • Investors should avoid Snap and Peloton as selloff continues in 2023

In sharp contrast to where I highlighted Occidental Petroleum (NYSE:) and Lockheed Martin (NYSE:) as two year-to-date winners to hedge against further downside volatility next year, below I take a look at two of the biggest losers of 2022 to avoid as further turbulence is to be expected.

1. Snap

  • YTD performance: -81.5%
  • Market capitalization: $14 billion

Snap (NYSE:) valuation is down in 2022 due to various headwinds such as: B. declining spending on digital advertising and increasing competition from companies like TikTok. The ad-dependent social media company has also struggled in the face of Apple’s crackdown on ad tracking in iOS apps.

In addition to deteriorating fundamentals, Snap has been negatively impacted by the harsh economic environment with rising, elevated and fears of an impending recession.

After surging to an all-time high of $83.34 in September 2021, SNAP stock, which is down 81.5% year-to-date, fell rapidly to hit a nearly four-year low of $7.33 on Oct. 21. Shares closed at $8.68 Thursday, about 90% below their record high.

At current valuations, the parent company of social media messaging app Snapchat has a market cap of $14 billion, well below its $136 billion peak.

There’s not much to like about Snap. Despite the year-long sell-off, Snap’s stock is still overvalued, trading at more than 25 times this year’s sales, making it a less attractive option in the current market environment.

I expect ad headwinds to worsen in 2023 as corporations and small businesses continue to cut ad spend in a slowing economy.

That doesn’t bode well for Snap’s monetization efforts, which will likely lengthen the path to profitability and increase execution risk.

As a result, I see the Santa Monica, Calif.-based company — which has only managed to turn a profit once since going public in 2017 — to suffer through another challenging year of slowing earnings and revenue growth amid weak performance in its core ads business .

snap earnings

With that in mind, the company is vulnerable to more losses in the coming year as it continues to be weighed down by an uncertain macroeconomic outlook and deteriorating fundamentals, prompting privacy changes to Apple’s iOS and growing competition from Chinese video-sharing app TikTok leads.

2nd main field

  • YTD performance: -74.2%
  • Market Cap: $3.1 billion

Widely regarded as one of the big winners of the 2020 COVID outbreak, Peloton (NASDAQ:) has since fallen out of favor due to a toxic combination of shrinking demand for its at-home fitness products, ongoing supply chain issues, and worries about a potential recession and rising Fed interest rates.

In general, expectations of tighter monetary policy weigh heavily on non-profitable companies with high valuations as rising interest rates threaten to erode the value of their longer-term cash flows.

Peloton daily chart

Year-to-date, Peloton shares are down about 74% and about 95% off their all-time high of $171.09 set in January 2021. PTON stock, which started the year at $35.26 before falling to a record low of $6.66 on Oct. 3, ended Thursday’s session at $9.21.

At current levels, the New York-based interactive fitness company, which sells stationary bikes and treadmills that allow monthly subscribers to take classes remotely via streaming media, has a market cap of $3.1 billion, compared to a peak valuation of nearly $50 billion in early 2021.

In my opinion, Peloton’s stock will experience further turbulence in 2023 as the exercise bike maker faces a challenging environment in which it burns deep cash reserves amid rising cost pressures and shrinking operating margins.

has missed revenue estimates for six consecutive quarters while underperforming revenue expectations five times during that span, reflecting the negative impact of multiple headwinds on its business.

Peloton is also struggling in the face of a difficult macroeconomic backdrop of rising interest rates, accelerating inflation and slowing growth.

Peloton Earnings

Looking ahead, Peloton’s management recently warned that the challenging macro environment could hamper the company’s goal of achieving break-even cash flow in the second half of fiscal 2023.

The disappointing forecasts tell me that Peloton is still struggling to meet its turnaround plan, adding to concerns about the long-term growth prospects of the ailing fitness equipment maker.

It’s hard for me to see Peloton regaining its footing in a post-pandemic world. Overall, I remain bearish on PTON and believe there are significant risks to the outlook that could push the shares to new lows in the year ahead.

Disclosure: At the time of writing, Jesse is short the S&P 500 and Nasdaq 100 through the ProShares Short S&P 500 ETF (SH) and ProShares Short QQQ ETF (PSQ). He is long Energy Select Sector SPDR ETF (XLE) and Health Care Select Sector SPDR ETF (XLV)..

The views discussed in this article represent the author’s opinion solely and should not be construed as investment advice.

Comments are closed.