In this article, we discuss 10 stocks that the high inflation is crushing. If you want to see more stocks that are impacted by inflation, check out High Inflation is Crushing These 5 Stocks.
The Consumer Price Index for July reported an 8.5% rise, which was a much needed reprieve for businesses, consumers, and policymakers alike. While inflation slowed relatively, it is not indicative of a proper turnabout in the economic crisis. After eliminating food and fuel costs to get an accurate insight on underlying prices, the CPI showed that prices jumped by 5.9% through July. While fuel prices, air travel, and automobile prices dropped in July, the decline was offset by higher rent and food costs. Although the stock market is rejoicing about the slower inflation numbers in July, the rate of inflation is still abnormally high and the drop was largely owed to lower gas prices, which can always climb again. The US dollar also fell against multiple currencies.
According to the U.S. Bureau of Labor Statistics, prices for services rose at an annualized rate of 8.1% over the three months to July, compared to a 9.9% jump over the three months to June, which was the highest recorded level in 40 years. The growth in the Service sector has diminished notably since the beginning of the year as per the survey of purchasing managers carried out by the Institute for Supply Management.
Inflation has plagued the United States since the start of this year, and it peaked to 9.1% in June. Many businesses have been impacted as consumers shift their spending patterns from discretionary and luxury purchases to basic necessities. Some of the stocks that were crushed due to high inflation include Builders FirstSource, Inc. (NYSE:BLDR), Expedia Group, Inc. (NASDAQ:EXPE), and Lowe’s Companies, Inc. (NYSE:LOW).
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Our Methodology
We selected stocks from sectors such as consumer discretionary, luxury retail, home improvement, and entertainment, to name a few. These sectors are generally impacted severely during inflationary periods. These stocks have also received subpar analyst ratings or ratings downgrades recently, which further indicate the crushing impact of inflation.
We have ranked the list according to the hedge fund sentiment around the securities, which was gauged from Insider Monkey’s Q1 2022 database of 900+ elite hedge funds.
High Inflation is Crushing These Stocks
10. Bed Bath & Beyond Inc. (NASDAQ:BBBY)
Number of Hedge Fund Holders: 15
Bed Bath & Beyond Inc. (NASDAQ:BBBY) is an American company that operates a chain of retail stores, selling bed linens, bath items, kitchen textiles, and home furnishings. Street consensus regarding Bed Bath & Beyond Inc. (NASDAQ:BBBY) is very negative due to past performance issues, however, the stock seems to be rallying amid a meme stock frenzy and short squeeze warnings.
On August 9, Baird analyst Justin Kleber downgraded Bed Bath & Beyond Inc. (NASDAQ:BBBY) to Underperform from Neutral with an unchanged price target of $4. The stock closed on August 8 up 40% to $11.41. The shares have gained 148% since July 27, including 86% in the past two trading days, the analyst told investors. However, he believes the rally has been “driven by non-fundamentally focused market participants”. With higher market share losses and Bed Bath & Beyond Inc. (NASDAQ:BBBY) “burning cash,” the stock’s fundamental risk/reward looks unattractive, contended the analyst. As per his estimates, the company needs to accumulate more than $350 million of EBITDA by fiscal 2025 to justify the present $2.3 billion enterprise value. This is a “tall order given the current macro/sector backdrop,” the analyst stressed.
According to Insider Monkey’s data, 15 hedge funds were bullish on Bed Bath & Beyond Inc. (NASDAQ:BBBY) at the end of Q1 2022, down from 17 funds in the last quarter. John Overdeck and David Siegel’s Two Sigma Advisors held a notable position in the company, comprising 915,474 shares worth $20.6 million.
Like Builders FirstSource, Inc. (NYSE:BLDR), Expedia Group, Inc. (NASDAQ:EXPE), and Lowe’s Companies, Inc. (NYSE:LOW), investors are monitoring Bed Bath & Beyond Inc. (NASDAQ:BBBY) carefully amid the soaring inflation.
Here is what Miller Value Partners Income Strategy has to say about Bed Bath & Beyond Inc. (NASDAQ:BBBY) in its Q2 2022 investor letter:
“Bed Bath & Beyond 5.165% 08/2044 declined 67.4% in the period. Bed Bath & Beyond reported 4Q21 sales of $2.05 billion, down 22% Y/Y, missing consensus of $2.08 billion. The company lost $0.92 per share in the quarter, down from 4Q20 adjusted EPS of $0.40, below analyst expectations for EPS of $0.03. Management noted supply chain disruptions and the Omicron variant led to inventory availability challenges, which had an estimated sales impact of $175 million, or 8.5% of 4Q21 net sales, and a 400 basis points (bps) Y/Y contraction in 4Q21 adjusted gross margin to 28.8%, driven by product cost increases and higher than anticipated freight and shipping costs. Additional headwinds in the quarter included general weakness in the retail segment, highlighted by big earnings misses from Walmart and Target, along with Moody’s downgrading Bed Bath’s corporate family rating from B1 to B2. The ratings agency cited increased execution risk of the company’s strategic turnaround initiatives and ongoing supply chain issues weighing on the company’s market share and profitability going forward as the main drivers for the downgrade. However, Moody’s maintained a stable outlook for the retailer due to the financial flexibility provided by the company’s liquidity position and low level of funded debt.”
9. Blend Labs, Inc. (NYSE:BLND)
Number of Hedge Fund Holders: 20
Blend Labs, Inc. (NYSE:BLND) is a California-based company that provides on-demand software products for mortgages, home equity loans, lines of credit, vehicle loans, personal loans, credit cards, and deposit accounts in the United States. On August 9, Blend Labs, Inc. (NYSE:BLND) traded 8% lower as fintech stocks got hammered ahead of July’s inflation data. Year to date, the stock has lost 57% in value as of August 10.
Keefe Bruyette analyst Ryan Tomasello on July 24 downgraded Blend Labs, Inc. (NYSE:BLND) to Underperform from Market Perform with a price target of $2.75, down from $4. The analyst took a rather defensive approach in real estate technology. While his optimistic long-term view on real estate technology is intact, the analyst expects the combination of a “looming recession and inhospitable environment for growth stocks to continue to weigh on valuations, particularly low profitability names with nascent, untested business models”.
Among the hedge funds tracked by Insider Monkey, 20 funds were bullish on Blend Labs, Inc. (NYSE:BLND) at the end of Q1 2022, compared to 16 funds in the prior quarter. Chase Coleman’s Tiger Global Management is the largest position holder in the company, with roughly 20 million shares worth $112.77 million.
8. TaskUs, Inc. (NASDAQ:TASK)
Number of Hedge Fund Holders: 21
TaskUs, Inc. (NASDAQ:TASK) is a Texas-based company that offers digital outsourcing services for companies worldwide. As inflation cuts into profit margins of firms, they stop or reduce the jobs they outsource, in order to save on costs. This impacts companies like TaskUs, Inc. (NASDAQ:TASK). As of August 10, the stock has shed over 66% in value year to date. TaskUs, Inc. (NASDAQ:TASK) stock plummeted 21% on August 9 despite beating Q2 earnings estimates, as its FY 2022 outlook was below consensus. The company expects revenues of $930 million to $950 million, versus a consensus of $969.49 million.
Goldman Sachs analyst Brian Essex on August 9 downgraded TaskUs, Inc. (NASDAQ:TASK) to Neutral from Buy with a price target of $24, down from $26. The company’s Q2 saw better than forecasted revenue and profitability, but the Q3 outlook was less than Wall Street consensus and its FY22 forecast was also revised lower, the analyst told investors. TaskUs, Inc. (NASDAQ:TASK) will trade at a discount until the company can set a record of improved performance and give investors more comfort that estimates and valuation adequately factor in the risk associated with its customer base, the analyst contended.
Among the hedge funds tracked by Insider Monkey, 21 funds were long TaskUs, Inc. (NASDAQ:TASK) at the end of Q1 2022, down from 30 funds in the last quarter. Jorge Paulo Lemann’s 3G Capital is the leading stakeholder of the company, with 1.70 million shares worth $65.3 million.
Here is what Alger Mid Cap Focus Fund has to say about TaskUs, Inc. (NASDAQ:TASK) in its Q4 2021 investor letter:
“TaskUs is a modern customer care company that manages digital customer experience exclusively for highly innovative “technology Disruptor” clients. The company’s services include managing end-consumers’’ needs for its clients, such as sales, after-sales support, complaint management, trust and safety and transaction processing. It also provides content security and operations services driven by artificial intelligence.
The stock underperformed in the final three months of 2021 despite the company providing a strong third quarter earnings report. We think the underperformance resulted from the company issuing 25% year-over-year earnings growth guidance for fiscal year 2022, which implies a meaningful deceleration. Additionally, an agreement preventing certain insiders from selling shares expires in the middle of January. The company’s shares, furthermore, have significant ownership by hedge funds, making them subject to year-end rebalancing. Despite the recent weakness, we think the fiscal year 2022 guidance is extremely conservative and the company is currently well positioned for future upward revisions to its earnings estimates.”
7. Bilibili Inc. (NASDAQ:BILI)
Number of Hedge Fund Holders: 24
Bilibili Inc. (NASDAQ:BILI) is a Chinese company that provides online entertainment services. The stock has lost more than 46% in value year to date as of August 10. As inflation rises and salaries do not match the increase in prices, Bilibili Inc. (NASDAQ:BILI) will likely struggle to gain more paying customers. With competition from Amazon Prime, Disney+, and Netflix, consumers will select one subscription at best in this macro backdrop, which will also create competitive pressure for Bilibili Inc. (NASDAQ:BILI).
On June 13, JPMorgan analyst Alex Yao raised the price target on Bilibili Inc. (NASDAQ:BILI) to $25 from $19 and maintained a Neutral rating on the shares.
Elite hedge funds pulled out of Bilibili Inc. (NASDAQ:BILI) in the first three months of 2022. According to Insider Monkey’s data, 24 hedge funds were bullish on Bilibili Inc. (NASDAQ:BILI) at the end of Q1 2022, down from 33 funds in the last quarter. Jonathan Guo’s Yiheng Capital is the leading stakeholder of the company, with 9.35 million shares worth $239.3 million.
Here is what Tao Value has to say about Bilibili Inc. (NASDAQ:BILI) in its Q3 2021 investor letter:
“As witnessed in the past quarter, the government intervention in the Chinese private sector is elevated to an unprecedented level. Given this background, I thoroughly reviewed all our Chinese holdings and made a few changes. We also exited Bilibili (ticker: BILI), given its priced-in valuation in the context of Chinese ADR confidence loss.”
6. Palantir Technologies Inc. (NYSE:PLTR)
Number of Hedge Fund Holders: 36
Palantir Technologies Inc. (NYSE:PLTR) is a Colorado-based company that builds software platforms in the United States that help with counterterrorism investigations and operations. Palantir Technologies Inc. (NYSE:PLTR) stock has plummeted 48% year to date. On August 8, the company reported Q2 results that missed market estimates. The company also posted a soft Q3 and full-year 2022 guidance. For the third quarter, the company expects sales to be between $474 million and $475 million, compared to Wall Street estimates of $508.23 million. For the full-year, Palantir Technologies Inc. (NYSE:PLTR) revised its forecast and now predicts that it will generate $1.9 billion in revenue, below analysts’ estimates of $1.98 billion. Inflation has also hit government budgets, which is negatively impacting the likes of Palantir Technologies Inc. (NYSE:PLTR).
On August 9, Deutsche Bank analyst Brad Zelnick downgraded Palantir Technologies Inc. (NYSE:PLTR) to Sell from Hold with a price target of $8, down from $11. The company’s Q2 report leaves “little to hang our hat on,” the analyst told investors. He said the results don’t support his earlier optimistic thesis on Palantir Technologies Inc. (NYSE:PLTR)’s government business, since he sees further deceleration of easier comps and less visibility in the future. In addition to reducing sales expectations, Palantir Technologies Inc. (NYSE:PLTR) is also “aggressively” spending, which is boosting its risk profile, contended the analyst.
According to Insider Monkey’s Q1 data, 36 hedge funds were bullish on Palantir Technologies Inc. (NYSE:PLTR), compared to 33 funds in the last quarter. Jim Simons’ Renaissance Technologies is the biggest stakeholder of the company, with 12.5 million shares worth $171.8 million.
Like Builders FirstSource, Inc. (NYSE:BLDR), Expedia Group, Inc. (NASDAQ:EXPE), and Lowe’s Companies, Inc. (NYSE:LOW), Palantir Technologies Inc. (NYSE:PLTR) is one of the stocks impacted severely by high inflation.
Here is what Tao Value has to say about Palantir Technologies Inc. (NYSE:PLTR) in its Q4 2021 investor letter:
“We have no new position this quarter and have made below changes to our portfolio. We also sold Palantir (PLTR) as I identified it subject to high retail bubble risk (using above method) and are not part of our core “Mindful Compounder” holdings.”
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Disclosure: None. High Inflation is Crushing These 10 Stocks is originally published on Insider Monkey.
