The Federal Reserve took its funds rate to the 3%-3.25% range in September, the highest since early 2008, and plans on continuing its hawkish rate hikes until inflation comes down to its target level of 2%. The Fed’s aggressive monetary policy tightening is raising the odds of a recession. According to JPMorgan’s CEO Jamie Dimon, U.S. stocks could tumble another 20%, while the economy might tip into a recession in 2023.

The International Monetary Fund has cut its global growth forecast to 2.7% for the next year and has warned of a lot of economic pain ahead. Tense geopolitical outlook amid the Russia-Ukraine war, UK’s cost-of-living crisis, and an economic slowdown in China due to the Covid-19 are also hindering global growth prospects.

Given the volatile market scenario, we think investors should steer clear of fundamentally weak stocks Royal Caribbean Cruises Ltd. (RCL - Get Rating) and Carvana Co. (CVNA - Get Rating).

Royal Caribbean Cruises Ltd. (RCL - Get Rating)

RCL, a cruise company, operates cruises under the Royal Caribbean International, Celebrity Cruises, Azamara, and Silversea Cruises brands worldwide. 

For the fiscal quarter ended June 2022, RCL’s operating loss came in at $218.64 million. Net loss and loss per share came in at $521.58 million and $2.05 as compared to $1.35 billion and $5.29 in the year-ago period.

The consensus EPS estimate for the ongoing fiscal year came in at a negative $6.93. RCL missed the EPS estimates in three of the trailing four quarters.

In terms of its forward EV/Sales, RCL is currently trading at 3.60x, 246.8% higher than the industry average of 1.04x. Its forward EV/EBITDA multiple of 38.71 is 374.4% higher than the industry average of 8.16.

The stock has declined 48.8% over the past year and 41% year-to-date to close the last trading session at $45.36.

RCL’s POWR Ratings reflect this bleak outlook. The stock has an overall D rating, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

RCL has a Stability grade of F and a Value, Sentiment, and Quality grade of D. In the 4-stock F-rated Travel – Cruises industry, it is ranked #3.

Click here to see the additional POWR Ratings for RCL (Momentum and Growth).

Carvana Co. (CVNA - Get Rating)

CVNA operates an e-commerce platform for buying and selling used cars in the United States. The company’s platform allows consumers to research and identify a vehicle, inspect it using 360-degree vehicle imaging technology, obtain financing and warranty coverage, purchase the vehicle, and schedule delivery or pick-up, all from their desktop or cell phone.

For the fiscal second quarter that ended June 30, 2022, CVNA’s gross profit declined 28.3% year-over-year to $396 million. The company’s net loss came in at $238 million, compared to a net profit of $22 million in the year-ago period. Also, its loss per share came in at $2.35, compared to an EPS of $0.26 in the year-ago period.

For the quarter ended September 2022, CVNA’s loss per share is expected to widen 413.2% year-over-year to $1.95. Also, its EPS is expected to come in at a negative $8.52 for the ongoing fiscal year. The company failed to surpass Street EPS estimates in each of the trailing four quarters.

In terms of its forward Price/Book, CVNA is currently trading at 14.74x, 533.7% higher than the industry average of 2.33x.

The stock has plummeted 93.2% over the past year and 91.8% year-to-date, closing the last trading session at $19.07.

It is no surprise that CVNA has an overall F rating, equating to a Strong Sell in our proprietary rating system. It also has an F grade for Growth, Stability, Sentiment, and Quality. Within the F-rated Internet industry, CVNA is ranked last out of the 63 stocks.

To see CVNA’s ratings for Value and Momentum, click here.

RCL shares fell $1.71 (-3.77%) in premarket trading Thursday. Year-to-date, RCL has declined -42.50%, versus a -25.41% rise in the benchmark S&P 500 index during the same period.

About the Author: Komal Bhattar

Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...

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