The stock market has witnessed a rough year so far. The S&P 500 reported its worst first half in over 50 years, hurt by various macroeconomic and geopolitical headwinds.
The Consumer Price Index (CPI) index rose 9.1% year-over-year in June, hitting a new high in more than 40 years. Even after raising the benchmark interest rates by 75 basis points today for the second straight month, the Federal Reserve is expected to keep tightening its monetary policy to avoid a deep recession. However, a potential economic downturn is expected to keep the stock market under pressure.
Rob Morgan, Chief Investment Analyst at Charles Stanley, stated, “Falling markets are one of the biggest challenges investors face. But these testing periods are an inevitable part of investing. In the long term, they can also present good opportunities to acquire assets as others despondently sell.”
Although the market sell-off creates numerous buy-the-dip opportunities for long-term investors, we think fundamentally weak stocks The Walt Disney Company (DIS) and Sea Limited (SE) are not well-positioned to survive the market fluctuations. So, these stocks are best avoided now.
The Walt Disney Company (DIS)
DIS is a leading entertainment company. The company operates through Disney Media and Entertainment Distribution; and Disney Parks, Experiences, and Products segments. It operates television broadcast networks and engages in film and episodic television content production and distribution. In addition, DIS operates theme parks and resorts.
On March 3, DIS announced that Disney+ will expand its offerings to a broader audience by introducing ad-supported subscriptions in addition to its option without ads, beginning in the U.S. in late 2022 and with further plans to expand internationally in 2023. This is expected to take a while to realize gains for the company.
In the fiscal 2022 second quarter ended April 2, 2022, DIS’ income from continuing operations before income taxes decreased 10% year-over-year to $1.10 billion. The company's net income from continuing operations declined 48% from the year-ago value to $470 million. Also, its EPS from continuing operations came in at $0.26, down 48% year-over-year.
The stock declined 36.4% year-to-date and 44.2% over the past year to close the last trading session at $99.78.
DIS' POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of D, translating to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
DIS has a grade of D for Value and Quality. Within the F-rated Entertainment - Media Producers industry, it is ranked #12 of 18 stocks.
To see DIS's POWR Ratings for Stability, Growth, Momentum, and Sentiment, click here.
Sea Limited (SE)
Headquartered in Singapore, SE engages in the digital entertainment, e-commerce, and digital financial service businesses internationally. The company provides Garena digital entertainment platform to access online games, eSports operations, and other entertainment content and a Shopee e-commerce platform for integrated payment and logistics infrastructure and seller services.
In addition, the company offers SeaMoney digital financial services, including offline and online mobile wallets, payment processing services, and other digital banking services under the ShopeePay, SPayLater, SeaBank, and other digital financial services brands.
In the fiscal 2022 first quarter ended March 31, 2022, SE’s operating expenses increased 67.8% from the year-ago value to $1.67 billion. Its operating loss widened 42.9% year-over-year to $498.03 million. The company’s adjusted EBITDA loss was $509.90 million compared to an $88.1 million gain for the first quarter of 2021.
Furthermore, the company’s net loss and loss per share came in at $580.14 million and $0.80, worsening 37.4% and 29% year-over-year, respectively.
Analysts expect SE’s loss per share to widen 76.7% from the prior-year period to $1.08 for the fiscal 2022 second quarter (ended June 2022). Furthermore, the consensus loss per share estimate for the ongoing quarter (ending September 2022) is expected to come in at $1.03, worsening 22.1% year-over-year.
SE’s shares have plunged 67.8% year-to-date to close the last trading session at $71.82.
SE’s POWR Ratings are consistent with this bleak outlook. The stock's overall F rating translates to a Strong Sell in our proprietary rating system.
SE has a grade of F for Stability and D for Growth, Value, and Quality. Within the F-rated Internet industry, it is ranked #61 of 64 stocks.
Click here to access additional SE’s POWR Ratings (Momentum and Sentiment).
DIS shares fell $0.25 (-0.24%) in after-hours trading Wednesday. Year-to-date, DIS has declined -33.18%, versus a -14.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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