The Federal Reserve announced its fourth consecutive 75-basis-point interest rate hike yesterday. While Jerome Powell hinted at potentially slower rate hikes in the future, he also quelled the optimism by saying that the central bank has “a ways to go” in tightening policy enough to bring inflation down to its 2% target.
With Powell not divulging what level of the so-called terminal rate will be, except that it is not coming down anytime soon and “that the ultimate level of interest rates will be higher” than once expected, the markets sank promptly and significantly. All the key market indices posted sharp intraday declines, with the Nasdaq Composite losing as much as 366.05 points or 3.4%.
With borrowing costs climbing slowly but surely in the foreseeable future, it seems unlikely that the economy will pick up pace and markets will settle down anytime soon. Moreover, the funding drought caused by rising interest rates is expected to make the survival of fundamentally weak companies difficult.
In the current scenario, qualitatively superior stocks, best placed to tide over the current macroeconomic uncertainties, are available for good value. Hence, we suggest steering clear of fundamentally weak and struggling stocks DraftKings Inc. (DKNG) and Mullen Automotive Inc. (MULN).
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 $0.49 per share during the fourth quarter of the current fiscal year, ending December 2022. The company is expected to keep reporting losses for at least two fiscal years.
The stock has plummeted 42.7% year-to-date to close the last trading session at $15.92.
DKNG has an overall rating of F, which equates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
DKNG also has a grade of F for Stability and Quality and a D for Value.
DKNG is ranked last among 27 stocks in the D-rated Entertainment – Casinos/Gambling industry.
Click here to see the additional POWR Ratings for DKNG (Growth, Sentiment, and Momentum).
Mullen Automotive Inc. (MULN)
With a $242.63 million market cap, MULN is an electric vehicle (EV) manufacturer and distributor that operates in various business verticals focused on the automobile industry. The company owns and runs businesses such as CarHub, which uses AI to give a user-friendly way to buy, sell, and own a car, and Mullen Energy, which sells battery technology and emergency point-of-care solutions.
On October 19, MULN announced that it had been granted approval from the US Bankruptcy Court for its acquisition of electric vehicle company ELMS’ (Electric Last Mile Solutions) assets in an all-cash purchase.
On September 8, 2022, MULN announced its acquisition of a 60% controlling interest in Bollinger Motors for $148.2 million in cash and stock. There might be a significant delay before the benefits of these acquisitions get accrued to MULN, while their burden weighs on the company’s finances in a rising interest rate environment.
For the fiscal 2022 third quarter ended June 30, 2022, MULN’s loss from operations widened 184.5% year-over-year to $18.22 million. During the same period, its net loss worsened by 289.9% year-over-year to $59.47 million, which translated to a $0.16 loss per share.
The stock has declined 93.8% year-to-date to close the last trading session at $0.36.
MULN’s bleak outlook is reflected in its overall POWR Rating of F, which translates to a Strong Sell in our proprietary rating system. It also has a grade of F for Value and Stability and a D for Sentiment and Quality.
It is ranked #57 of 64 stocks in the D-rated Auto & Vehicle Manufacturers industry.
Click here to access the Growth and Momentum ratings for MULN.
DKNG shares were trading at $15.83 per share on Thursday afternoon, down $0.09 (-0.57%). Year-to-date, DKNG has declined -42.37%, versus a -20.49% 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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