The Market’s 5 Biggest Disasters In 2022

CoinbaseCOIN
leads the list of this year’s list of stock-market disasters. Here are the stocks down the most through December 16, among all stocks with a market value of $5 billion or more.

Each year I sift through the market’s rubble, and usually find one or two stocks to recommend. This year I like two of the five biggest losers.

Coinbase, based in Wilmington, Delaware, is the largest cryptocurrency exchange platform in the U.S. Its rival, FTX, has just blown up in a spectacular fashion (and its CEO, Sam Bankman-Fried, has been indicted on charges of fraud).

Normally, the implosion of a rival firm would help a company’s stock. It hasn’t helped Coinbase, probably because the FTX debacle undermines people’s faith in crypto, in general.

Cryptocurrencies—and by extension, crypto exchanges—have two big problems. One if the frequent theft of crypto wallets. The other is the threat of harsher regulation or even bans by various governments. Given these problems, I think Coinbase will be lucky to match the market in the coming year.

Snapchat is a social media site that allows people to chat and exchange photos, with both text and pictures vanishing after a certain time. It claims 363 million users per day.

Profits? Not yet. Analysts think the company will get above breakeven in 2023. Future success depends on attracting more ads, which may be difficult if we have a recession in 2023. I expect the stock to perform about in line with the overall market.

Twilio, a business software company based in San Francisco, facilitates interactions between phone systems and the Internet. It has a long list of business customers, including Airbnb, Dell, UberUBER
and LyftLYFT
.

Like Snap, Twilio isn’t yet profitable, but analysts expect profitability in 2023. Twilio boasts a strong balance sheet, with debt only 12% of the company’s net worth wha(book value). Twilio’s stock price is only 0.79 times book value. I consider any ratio below 1.0 to be attractively cheap. Of the 36 Wall Street analysts who follow the stock, 21 rate it a buy and 15 don’t. I vote with the optimists here.

Lucid Group, out of Newark, California, makes the Lucid Air electric vehicle. Proponents say that Lucid’s car is ahead of Tesla in its range before recharging, speed and acceleration.

But Tesla and some traditional car makers have beaten Lucid to the market. In the first nine months of 2022, Tesla had close to 68% of the U.S. electric-vehicle market. Lucid, like many other newcomers to the field, had less than 1%. The company sold $27 million worth of cars last year. Analysts expect that figure to soar to $5.2 billion in 2024. I like this as a speculation–a raw speculation to be sure.

Roku is a service that lets people stream movies, TV shows and videos at a discounted price. It has a big chunk of the U.S. streaming market.

The company posted six losses in 2015-2020. It had a profit in 2021, but the past three quarters have reverted to loss status. Only 13 of the 32 analysts who follow the stock recommend it. I’m guessing the company will struggle a bit more in 2023.

Past Results

The column you’re reading is the 12^th in a series. I’ve looked at the market’s five biggest losers each year beginning in 2011. Every year I’ve found at least one stock to recommend, and in some years as many as three.

In the 11 previous outings, my picks have averaged a 26% return, versus 10.7% for the Standard & Poor’s 500 Total Return Index.

Bear in mind that my column results are hypothetical and shouldn’t be confused with results I obtain for clients. Also, past performance doesn’t predict the future.

My picks have beaten the index only four times out of 11. Yet in all four of the winning years, my selection have risen more than 100%. Hence, the 26% average gain.

Last year I recommended avoiding four of the five biggest losers. The ones I said to stay away from declined, on average, 60%. The biggest loser, Ring Central Inc. (RNG) fell 79%. “I believe it’s an ongoing train wreck,” I said in December 2021.

If only I had said to avoid all five of 2021’s losers! I recommended Altice USAATUS
Inc., a broadband carrier in several rural areas and in New York City. It declined 75%.

By comparison, the S&P 500 was down 14.3% from December 20, 2021 through December 16, 2022. All figures are total returns including dividends.

Disclosure: A hedge fund I manage has a short position in Ring Central.