These stocks that are vulnerable to rate cuts won’t be saved by a potential interest rate cut. Readers can take that statement one of two ways. It’s either a reflection that rate cuts are now expected to occur later than previously expected, and that the firms will run out of time. Or, it implies that even if rate cuts are quickly enacted that it won’t be enough to save these firms.
I’d suggest that in either case the firms discussed are not worthy of investment. Each stock has suffered in the face of continued quantitative tightening. However, each firm also has a unique variety of other factors which conspire to weaken their respective stocks.
Investors should not be lured in by suggestions of outsized gains on implied rebounds. Instead avoid these stocks that are vulnerable to rate cuts at all costs.
AMC (AMC)
AMC (NYSE:AMC) was one of the primary names during the Reddit meme stock era. That era is essentially over and what remains is the naked truth of its business.
AMC operates movie theaters that are struggling to find their niche in the new digital era. people simply are not going out to the movies as often as they did in the past. The long-term trends continue to point to the continued emergence of other modes of watching movies.
The problem won’t get any better for AMC in the immediate future. AMC posted $4.81 billion in sales during all of 2023. That figure is expected to shrink to $4.55 billion in 2024. Bullish investors could argue that AMC’s EPS losses are narrowing over the same period in order to make an argument in favor of investing. However, AMC is expected to continue producing losses through at least 2026. It’s all part and parcel of a larger narrative in which the movie theater industry continues to contract. That has been and will continue to be the primary reason to avoid AMC which is the largest theater chain in the U.S.
Mullen Automotive (MULN)
Mullen Automotive (NASDAQ:MULN) continues to use naive investors to enrich its ownership. Those investors have become blind to the fact that the company has enacted three reverse stock splits over the last 12 months. They somehow continue to believe that the company will emerge as a legitimate EV truck and van manufacturer in the future.
Mullen shares themselves currently trade for approximately $4. However, that is simply a function of the arithmetic that governs stock splits. Most of the time investors understand that reverse stock splits are a desperate hail Mary to increase the value of share prices. The common result is that firms enacting reverse stock splits are usually punished. Yet, that doesn’t seem to be the case with Mullen Automotive which should trade for mere pennies by now.
Several of my colleagues have noted that the company continues to enrich its ownership. This is happening despite the horrendous underlying business. Do not reward Mullen Automotive’s ownership with your capital. It will not be utilized to enact a turnaround. Instead it will line the pockets of a CEO steering the company into oblivion.
Vornado Realty (VNO)
Vornado Realty (NYSE:VNO) is a large commercial real estate firm and precisely the kind of stock that suffers as interest rates rise.
Commercial real estate continues to face severe headwinds due to the emergence of remote and hybrid work models. The problem is particularly acute for Vornado Realty which is focused on office properties.
Occupancy rates have rebounded to a degree but remote work is here to stay. firms like tornado Realty cannot remain stuck in the past because that past doesn’t exist anymore.
That’s only one problem for the firm. Its holdings are concentrated in the New York metropolitan area. Cheaper options have emerged making New York City less attractive than it was before.
The company is also plagued by a troubled dividend that has shrunk by 19% annually over the past 5 years. Beyond that, the firm is also clearly in distress based on multiple metrics including its Altman-Z score which measures bankruptcy risk.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.