3 Vulnerable Stocks That Will Be the Most Affected if Rates Don’t Come Down
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3 Vulnerable Stocks That Will Be the Most Affected if Rates Don’t Come Down

Sticky inflation just got stickier, and the Fed's dual mandate is heading for another testing.
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

The US inflation rate keeps moving away from the Fed’s 2% target. The latest Bureau of Labor Statistics report puts the annual Consumer Price Index (CPI) at 3.5% for March. Just like February’s 3.2%, the inflation once again exceeded the estimate of 3.4%.

Making it the fourth consecutive month of beating expectations, auto insurance (22.2%), transportation (10.7%), and rent (5.7%) are just some of the cost of living elements remaining elevated. The Federal Reserve started its interest rate hiking cycle in March 2022 to stem the inflationary tide. 

This eventually brought down inflation from its peak in July 2022 at 9% to its lowest point of 2.97% in June 2023. If the reignited trend continues, rate cuts could be off the Fed’s table. Fed fund futures have already accounted for this, with the CME FedWatch tool showing a shift from July to September for the first rate cut at a 69% probability.

If the economy is to have a repeat of 2022, which more extensive stocks would be most negatively affected by inflation?

Nike, Inc. (NASDAQ: NKE)

Just as inflation reduces consumers’ purchasing power, it also increases operational costs. For Nike, this largely comes from freight and logistics. Pitted against each other, these drivers do not make a profitable combination for Nike, which depends on slim profit margins, reported at 44.75% in February’s Q3 FY24.

The sportswear company reported flatlined revenue of $12.4 billion, representing only 1% year-over-year growth. At a year-to-date slump of 13.7%, NKE stock is now just 2.6% away from the 52-week low price of $88.66 per share. 

In addition to losing market share to competitors On Holding (ONON) and Hoka by Deckers Outdoor Corp. (DECK), Nike has been battling rampant retail theft. In the meantime, the company is shifting its business model to expand wholesale partnerships, which is the opposite of its focus on direct-to-consumer branding.

Twelve months ahead, Nasdaq’s average NKE price target is $111.32. It could go lower from its 52-week low point to $81, depending on inflation trends. The high estimate for NKE is $130 vs the current $89.54 per share. 

Beyond Meat (NASDAQ: BYND)

Since end-February’s resurgence to $7.52, BYND meat is now at $7.14. The novel food company continues its downward trend, losing 53% of its value over one year. At its 52-week low, investors priced BYND shares at $5.58.

Essentially providing a luxury food substitute, this business model doesn’t bode well with rising living expenditures. Beyond Meat has been battling an uphill battle by trying to tamper with people’s ancient food habits. 

Accordingly, the company hasn’t left the negative quarterly revenue growth since Q2 2022. Moreover, it has operated at a consecutive quarterly net loss since Q2 2020, having reported the largest net loss of $155 million in Q4 2023 vs $67 million net loss in a year-ago quarter.

Still under short squeeze pressure, with a 35.83% float shorted, BYND stock’s average price target of $6.86 is below the present level of $7.14. Twelve months ahead, Nasdaq’s lowest estimate is $3, while the highest is $10 per share.

Whirlpool Corporation (NASDAQ: WHR)

Known for its large and small home appliances, Whirlpool relies on households’ heftier expenditures to replace existing or buy new appliances. Typically, consumers delegate these expenditures down the budget priority list. 

In January, the company openly admitted this. Whirlpool’s Chief Financial Officer Jim Peters noted that they “continue to see an environment where the discretionary part of our business is under pressure.”

For the 2024 outlook, the company forecasts $16.9 billion in revenue, below the estimated $17.7 billion. Likewise, Whirlpool’s earnings per share forecast is $8.50 – $10.50 in 2024 vs. reported $8.72 (GAAP) for the full year 2023. Rising inflation and postponed interest cuts are likely to place Whirlpool’s EPS at the lower end of that estimate.

Year-to-date, WHR stock is down 12.7%. At its 52-week low, the stock was priced at $98.40 vs current $112.72 per share. Nasdaq’s average WHR price target is now $99.75, with a low estimate of $63, while the high estimate is $140 per share.

Do you think there will be zero rate cuts this year? Let us know in the comments below.

Disclaimer: The author does not hold or have a position in any securities discussed in the article.