In this article, we will look at the 10 stocks that can crash after the Federal Reserve’s latest rate hike. If you want to explore similar stocks, you can also take a look at These 5 Stocks Can Crash After Federal Reserve’s Latest Rate Hike.
Inflation Rose 8.3% in August
In August 2022, the all items index rose 8.3% year-over-year, down from the CPI reading of 8.5% in July. The energy index declined from its July reading of 32.9% and rose 23.8% year-over-year in August. Food prices surged as the food index recorded a year-over-year increase of 11.4% in August, the biggest twelve-month increase since 1979. The all items less food and energy index rose 0.6% from July and recorded a 6.3% year-over-year increase in August.
Ray Dalio’s ‘Guesstimate’: Equities Tanking 20%
On September 14, Billionaire investor Ray Dalio of Bridgewater Associates published an article on his LinkedIn in which he explained how inflation, interest rates, markets, and the economy are related to each other. Ray Dalio expects long-term inflation in the U.S. to average between 4.5% and 5%, as opposed to other experts’ projections of longer-term inflation in the U.S. being 2.6%. Based on his calculations, Mr. Dalio arrived at his estimate of long-term and short-term interest rates averaging between 4.5% and 6%. Ray Dalio estimates that hiking interest rates to 4.5%, from between 2.25% and 2.5%, would cause stock prices to decline by another 20%.
Inflation is surging, interest rates are going up, bond yields are rising, and stocks are plummeting. As of September 19, the S&P 500 has lost 18.6% so far in 2022, the tech-heavy Nasdaq has tanked 27% since the beginning of the year, and the Dow has fallen 15% year to date. Stocks can fall further if the Fed raises interest rates at its September meeting. Large-cap companies that are taking a beating in 2022 and are expected to fall further after the Fed’s rate hike include Meta Platforms, Inc. (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), and Tesla, Inc. (NASDAQ:TSLA).
Source: Federal Reserve.
Chairman Powell presents the Monetary Policy Report to the Senate Committee on Banking, Housing, and Urban Affairs. Report here: www.federalreserve.gov/monetarypolicy/2018-07-mpr-summary…
Our Methodology
To determine the 10 stocks that can crash after the Federal Reserve’s latest rate hike, we looked at high-growth companies and companies operating in the consumer discretionary sector. If the Fed continues to raise interest rates to slow down the economy, growth stocks are expected to underperform. Particularly, companies that have a high debt-to-equity ratio relative to their industry will suffer the most since higher interest rates will strain their cash flows and affect their valuations.
Along with each stock, we have mentioned the hedge fund sentiment, analyst ratings, and debt-to-equity ratios. We sourced the debt-to-equity ratios from YCharts. We have ranked our picks in increasing order of debt-to-equity ratios.
These 10 Stocks Can Crash After Federal Reserve’s Latest Rate Hike
10. Roblox Corporation (NYSE:RBLX)
Debt-to-Equity Ratio: 1.80
Number of Hedge Fund Holders: 38
On September 12, Cowen analyst Doug Creutz initiated coverage of Roblox Corporation (NYSE:RBLX) with an Underperform rating and a $31 price target. Creutz noted that the company’s current valuation “aggressively” prices in a metaverse, which the analyst still sees as “far away”. Moreover, the analyst sees Roblox Corporation (NYSE:RBLX) facing significant competition in the metaverse, once the digital world launches.
On August 9, Roblox Corporation (NYSE:RBLX) announced earnings for the fiscal second quarter of 2022. The company reported a loss per share of $0.30 and missed expectations by $0.04. The company’s revenue contracted by 3.84% and amounted to $639.9 million.
Roblox Corporation (NYSE:RBLX) is a company that can suffer after the Fed’s latest rate hike, as higher interest rates can impact the company’s future cash flows. The stock is falling in 2022, and as of September 19, has declined more than 62% year-to-date. The company has a debt-to-equity ratio of 1.80 as of June 30, and its total debt as of the second quarter of 2022 sits at $1.44 billion.
At the end of Q2 2022, 38 hedge funds were long Roblox Corporation (NYSE:RBLX) and held stakes worth $1.41 billion in the company. This is compared to 40 positions in the previous quarter with stakes worth $1.77 billion. The hedge fund sentiment for the stock is negative.
As of June 30, Renaissance Technologies owns 11.5 million shares of Roblox Corporation (NYSE:RBLX) and is the largest shareholder in the company. The investment covers 0.45% of Jim Simons’ 13F portfolio.
In addition to Roblox Corporation (NYSE:RBLX), other high-growth stocks that can crash further if the Fed raises interest rates include Meta Platforms, Inc. (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), and Tesla, Inc. (NASDAQ:TSLA).
9. Broadcom Inc. (NASDAQ:AVGO)
Debt-to-Equity Ratio: 1.88
Number of Hedge Fund Holders: 66
Broadcom Inc. (NASDAQ:AVGO) is a leading semiconductor designer and developer. On September 2, BMO Capital analyst Ambrish Srivastava cut her price target on Broadcom Inc. (NASDAQ:AVGO) to $650 from $675 and reiterated an Outperform rating on the shares. This September, Truist analyst William Stein slashed his price target on Broadcom Inc. (NASDAQ:AVGO) to $630 from $658 and maintained a Buy rating on the shares.
While Broadcom Inc. (NASDAQ:AVGO) is an industry leader, it is prone to higher interest rates. According to the company’s fiscal third-quarter balance sheet, Broadcom Inc. (NASDAQ:AVGO) has total debt of $39.5 billion, and a debt-to-equity ratio of 1.88 as of July 31. The stock can tumble if the Fed continues to tighten, draining the company’s free cash flows and contracting its operating margins. As of September 19, the stock has lost 25% year to date.
Insider Monkey spotted 66 hedge funds having stakes in Broadcom Inc. (NASDAQ:AVGO) at the close of Q2 2022. The total value of these stakes amounted to $4.03 billion, down from $5.48 billion in Q1 2022 with 71 positions. The hedge fund sentiment for the stock is negative.
As of June 30, Fisher Asset Management is the leading shareholder in Broadcom Inc. (NASDAQ:AVGO) with stakes worth $716 million. The investment covers 0.5% of Ken Fisher’s 13F portfolio.
8. Euronet Worldwide, Inc. (NASDAQ:EEFT)
Debt-to-Equity Ratio: 2.04
Number of Hedge Fund Holders: 32
Euronet Worldwide, Inc. (NASDAQ:EEFT) is a technology company that provides payment and transaction processing solutions to financial institutions, agents, retailers, merchants, content providers, and individual consumers worldwide. Euronet Worldwide, Inc. (NASDAQ:EEFT) can crash after the Fed’s latest rate hike. The stock is overvalued and is trading at a PE multiple of 34x as of September 19. The company’s second-quarter 2022 balance sheet shows that its total debt currently sits at $2.24 billion, and the stock’s debt-to-equity ratio as of June 30, 2022, is 2.04.
On September 15, Stephens analyst Charles Nabhan initiated coverage of Euronet Worldwide, Inc. (NASDAQ:EEFT) with an Equal Weight rating and a $95 price target. Nabhan noted that though the company has the ability to benefit from payment digitization in the long run, its near-term outlook is uncertain due to a lack of earnings visibility because of macroeconomic headwinds. As of September 19, the stock has lost 28% year to date.
At the close of the second quarter of 2022, 32 hedge funds disclosed ownership of stakes in Euronet Worldwide, Inc. (NASDAQ:EEFT). The collective stakes of these hedge funds amounted to $252.8 million. This is compared to 31 hedge funds in Q1 2022, with stakes worth $288 million.
As of June 30, Joho Capital is the most prominent investor in Euronet Worldwide, Inc. (NASDAQ:EEFT). The fund’s stakes are valued at $55.7 million.
7. Booking Holdings Inc. (NASDAQ:BKNG)
Debt-to-Equity Ratio: 2.36
Number of Hedge Fund Holders: 93
Booking Holdings Inc. (NASDAQ:BKNG) operates a platform that provides online travel and restaurant reservation services worldwide. On August 3, Booking Holdings Inc. (NASDAQ:BKNG) announced earnings for the fiscal second quarter of 2022. The company generated a revenue of $4.3 billion and missed expectations by $55.85 million.
According to the company’s balance sheet, the company’s total debt as of June 30 sits at $9.8 billion and its debt-to-equity ratio is estimated at 2.36. If the Fed raises interest rates, Booking Holdings Inc. (NASDAQ:BKNG) can lose a major chunk of its value as its cash flow gets strained. As of September 19, the stock has plummeted 22% year to date.
On September 12, DA Davidson analyst Tom White cut his price target on Booking Holdings Inc. (NASDAQ:BKNG) to $2,150 from $2,300 and maintained a Neutral rating on the shares.
At the end of Q2 2022, 93 hedge funds were long Booking Holdings Inc. (NASDAQ:BKNG) and held stakes worth $5.45 billion in the company. This is compared to 99 positions in the previous quarter with stakes worth $7.58 billion. The hedge fund sentiment for the stock is negative.
As of June 30, Harris Associates is the largest shareholder in Booking Holdings Inc. (NASDAQ:BKNG) and has stakes worth $1 billion in the company.
Here is what Matrix Asset Advisors had to say about Booking Holdings Inc. (NASDAQ:BKNG) in its second-quarter 2022 investor letter:
“We started a new position in Booking Holdings Inc. (NASDAQ:BKNG) a leading global online travel company. Bookings has the largest market share in the online travel agency business through its Bookings.com, Priceline.com, Agoda, Kayak, OpenTable, Rentalcars, and Etraveli franchises. Before Covid, BKNG was growing at a double-digit rate with earnings reaching $102 per share in 2019. The company’s business was hit hard during Covid but remained profitable. As global economies emerge from Covid, the travel business and Bookings have recovered quickly but the stock has been a casualty of the NASDAQ sell-off. The company has a strong balance sheet and shareholder-oriented management. We think the share price decline provided a good entry point for this high-quality company in an industry with strong growth prospects.”
6. Cloudflare, Inc. (NYSE:NET)
Debt-to-Equity Ratio: 2.47
Number of Hedge Fund Holders: 41
Cloudflare, Inc. (NYSE:NET) is a leading global cloud services provider. Cloudflare, Inc. (NYSE:NET) is a high-growth stock that can crash if the Fed makes cheap credit hard to access and continues to aggressively raise interest rates. According to the company’s second-quarter balance sheet, Cloudflare, Inc. (NYSE:NET) has total debt of $1.57 billion. The company’s debt-to-equity ratio is estimated to be 2.47. Moreover, Cloudflare, Inc.’s (NYSE:NET) profits are suffering, as of September 19, the company’s trailing twelve-month operating margin sits at -21.13%.
On September 8, Cantor Fitzgerald analyst Jonathan Ruykhaver initiated coverage of Cloudflare, Inc. (NYSE:NET) with a Neutral rating and a $65 price target. Fitzgerald noted that the company is a “disruptor” in the cloud computing industry.
Insider Monkey spotted Cloudflare, Inc. (NYSE:NET) on 41 investment portfolios at the end of Q2 2022. The total stakes of these hedge funds amounted to $541 million, down from $1.24 billion in the previous quarter with 44 positions.
As of June 30, Two Sigma Advisors owns 2.37 million shares of Cloudflare, Inc. (NYSE:NET) and is the most prominent shareholder in the company. The investment covers 0.29% of the fund’s 13F portfolio.
Like Meta Platforms, Inc. (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), and Tesla, Inc. (NASDAQ:TSLA), Cloudflare, Inc. (NYSE:NET) is taking a beating in 2022 and As of September 19 has crashed more than 51% year to date.
Here is what Baron Funds had to say about Cloudflare, Inc. (NYSE:NET) in its second-quarter 2022 investor letter:
“Despite posting solid quarterly results with 54% revenue growth, and a record addition of 14,000 customers, shares of Cloudflare, Inc. (NYSE:NET), a software infrastructure provider, declined 63% in the quarter along with other fast-growing names in the software universe that penalize current profitability by reinvesting back in their businesses. We believe Cloudflare’s disruptive global platform and unmatched pace of innovation will enable the company to continue to take share across multiple large addressable markets for years to come.”
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Disclosure. None. These 10 Stocks Can Crash After Federal Reserve’s Latest Rate Hike is originally published on Insider Monkey.
