Impressive third-quarter corporate earnings, declining jobless claims, and rising consumer spending drove the markets to fresh highs in October. However, increasing concerns about high inflation, weak job growth reports for November, supply chain constraints, the Federal Reserve’s hawkish monetary policy, and the discovery of the new COVID-19 omicron variant caused the major stock indexes to pull back last week.
Notably, the CBOE’s volatility index has gained 14.7% over the past month, reflecting high market volatility. Though major benchmark indexes have rebounded lately, the aforementioned factors will likely keep the markets under pressure in the near term. High beta stocks tend to be highly correlated with the broader markets. Thus, these stocks typically witness tremendous fluctuations in a highly volatile market.
Thus, we expect high-beta stocks MP Materials Corporation (MP), Overstock.com, Inc. (OSTK), Canaan Inc. (CAN), and Altus Midstream Company (ALTM) to slump in price in the near term, owing to their weak fundamentals and overvaluations. So, we think they are best avoided now.
MP Materials Corporation (MP)
Las Vegas-based MP owns and operates integrated rare earth mining and processing facilities. The company holds the mineral rights to the Mountain Pass mine and surrounding areas, and intellectual property rights related to the processing and development of rare earth minerals. It has a 3.56 beta.
On November 10, 2021, Bragar Eagel & Squire, a law firm, announced that it is investigating potential claims against MP on behalf of its stockholders on concerns regarding MP’s possible violations of federal securities laws. The lawsuits were filed after Grizzly Research published a research report on October 26 revealing that Shenghe, a related third party and significant shareholder, accounted for 99% of MP’s revenue. Also, the report stated that a significant shareholder could be traced back to the Chinese central government, which could potentially pose a national security concern. Following its release, the stock’s price declined 12% intraday. And analysts expect the stock to witness a significant downtrend in the coming months.
For the fiscal third quarter, ended September 30, 2021, MP’s total operating costs and expenses increased 83.6% year-over-year to $45.66 million. As of September 30, 2021, the company had $1.18 billion in cash and cash equivalents. Over the past six months, the stock has gained 31.9% in price and closed yesterday’s trading session at $42.64.
In terms of forward EV/EBITDA, MP is currently trading at 34.37x, which is 346.3% higher than the 7.70x industry average. In terms of forward Price/Sales, MP is currently trading at 23.57x, which is 1503.8% higher than the 1.47x industry average.
MP’s weak prospects are reflected in its POWR Ratings. The stock has an overall D rating, which equates to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
MP has an F grade for Stability and a D grade for Value, Momentum, and Sentiment. To see additional POWR Ratings for MP’s Growth and Quality, click here.
Of the 40 stocks in the F-rated Miners – Diversified industry, MP is ranked #24.
Overstock.com, Inc. (OSTK)
OSTK operates as an online retailer and technology company that offers a broad range of new home products at low prices. The Salt Lake City, Utah-based company provides businesses advertising products or services on its website and focuses on developing and managing financial applications of blockchain technologies. It has 4.23 beta.
On April 26, 2021, OSTK closed its blockchain fund transaction with Pelion Venture Partners, a third-party venture capital firm, and converted its wholly-owned blockchain-focused subsidiary, Medici Ventures, into a limited partnership that Pelion MV GP will manage going forward. OSTK will now focus on its core e-commerce business.
OSTK’s net revenue for its fiscal third quarter, ended September 30, 2021, came in at $689.39 million, representing a 3.9% decline from the prior-year period. The company’s gross profit was $156.71 million, down 7.1% from the prior-year period. Its $28.85 million of operating income for the quarter indicates a 25.8% year-over-year decline. As of September 30, 2021, the company had $512.19 million in cash and cash equivalents.
OSTK’s stock has lost 8.3% in price over the past six months and ended yesterday’s trading session at $85.96. OSTK’s 20.81x forward EV/EBITDA is 105.5% higher than the 10.12x industry average. And in terms of forward Price/Cash Flow, OSTK is currently trading at 29.30x, which is 133.9% higher than the 12.53 x industry average.
OSTK’s POWR Ratings are consistent with this bleak outlook. OSTK has a D grade for Sentiment and Stability. In addition to the POWR Rating grades I have highlighted, one can see OSTK’s ratings for Growth, Value, Momentum, and Quality here.
The stock is ranked #25 of 77 stocks in the F-rated Internet industry.
Canaan Inc. (CAN)
Headquartered in China, CAN researches, designs, and sells integrated circuit (IC) final system products by integrating IC products for bitcoin mining and related components. The company is also involved in assembly system products, supply chain and distribution of system products, artificial intelligence development, blockchain technology, and data center operations. It has a 4.46 beta.
On August 31, CAN secured a purchase order for 20,000 of its Bitcoin mining machines from Genesis Digital Assets Limited, a leading Bitcoin mining firm that builds and operates industrial-scale Bitcoin mining data centers. Genesis is seeking to rapidly scale its bitcoin mining operations in North America and the Nordics. The order, with an option for future large purchases, further solidifies CAN’s collaborations and reflects both parties’ confidence in the prospects of the cryptocurrency mining industry.
For its fiscal third quarter, ended Sept. 30, 2021, CAN’s total operating expenses increased 267% year-over-year to $43.21 million. The company had $263.60 million in cash and cash equivalents as of September 30, 2021.
Over the past six months, CAN shares have declined 36% in price and ended yesterday’s trading session at $6.44. CAN’s 11.30x trailing-12-month EV/Sales is 168.6% higher than the 4.21x industry average. And in terms of trailing-12-month Price/Sales, CAN is currently trading at 13.48x, which is 237.5% higher than the 3.99x industry average.
CAN’s POWR Ratings reflect this bleak outlook. The stock has an F grade for Stability and a D grade for Sentiment. Click here to see the additional ratings for CAN (Growth, Value, Quality, and Momentum).
CAN is ranked #27 of 52 stocks in the B-rated Technology – Hardware industry.
Altus Midstream Company (ALTM)
ALTM in Houston, Tex., owns gas gathering, processing, and transmission assets in the Permian Basin of West Texas. The company’s existing gathering, processing, and transmission infrastructure is expected to provide capacity levels capable of fulfilling its midstream contracts to service Apache’s production from Alpine High and potential third-party customers. It has a 3.56 beta.
On October 21, ALTM announced that it would merge with privately-owned BCP Raptor Holdco LP in an all-stock transaction of 50 million Class C common shares, resulting in combined ownership of approximately 75% of the pro forma company. The combined business will have a more diversified asset profile, customer base, operational capabilities, and fully integrated service offerings necessary for long-term success.
For its fiscal third quarter, ended September 30, 2021, its total revenues increased 14% year-over-year to $34.55 million. Its operating income was $14.59 million, representing a 23% decline from the prior-year period. The company had $108.99 million in cash and cash equivalents as of September 30, 2021.
Analysts expect ALTM’s revenue to decrease 8.3% year-over-year to $136.16 million in the current year. Over the past six months, the stock has declined 3.9% in price and ended yesterday’s trading session at $65.81.
ALTM’s 16.25x trailing-12-month EV/Sales is 509.1% higher than the 2.67x industry average. And in terms of trailing-12-month Price/Sales, ALTM is currently trading at 1.79x, which is 30.9% higher than the 1.37x industry average.
It is no surprise that ALTM has an overall D rating, which equates to Sell in our POWR Ratings system. ALTM has an F grade for Growth and a D grade for Value and Sentiment. Click here to see additional POWR Ratings for ALTM’s Stability, Quality, and Momentum.
The stock is ranked #72 of 82 stocks in the B-rated Energy – Oil & Gas industry.
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MP shares were trading at $43.86 per share on Wednesday afternoon, up $1.22 (+2.86%). Year-to-date, MP has gained 36.34%, versus a 26.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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