Even though the broader market suffered its biggest correction in nearly two years to start 2022, optimists have been handsomely rewarded for their patience. No matter how many crashes or corrections the market has suffered, history has shown that the value of major US indices tends to increase over time.
But it’s not because iconic indexes like the Dow Jones Industrial Average and S&P500 increase over time, it does not mean that all stocks will be winners. Based on a wide range of Wall Street price targets, some analysts and investment banks predict the possibility of these ultra-popular stocks crashing in 2022.
Tesla Motors: implied 65% drop
There’s perhaps no more popular stock with a wider range of expected Wall Street earnings than the electric vehicle (EV) maker Tesla Motors (NASDAQ: TSLA). In one column, a small handful of investment banks are calling on the electric vehicle giant to reach $1,400 (or more) over the next year. In the other column is JP Morgan analyst Ryan Brinkman, who even after recently raising his companies’ price target on Tesla, expects shares to fall 65% to $325.
This wide swing in Wall Street’s price targets for Tesla appears to be a reflection of the company’s existing competitive advantages and innovation battling constant lags and its high valuation.
Regarding the former, Tesla still offers clear competitive advantages in the electric vehicle space. While the company’s 2020 Battery Day presentation was seen as lackluster by Wall Street, it nonetheless highlighted the power, capacity and range advantage the company holds over other producers. of electric vehicles.
Tesla also has the capital and infrastructure to dramatically increase production. Keeping in mind that around 750,000 EV deliveries were expected at the start of 2021, Tesla managed to deliver over 936,000 EVs by the end of the year. Note that this increase in shipments takes into account the shortages of semiconductor chips and supply chain issues facing the entire automotive industry.
But Tesla isn’t alone in the EV space. There are a host of established automakers with deep pockets, plenty of existing infrastructure, and well-known brands, which will give the EV kingpin a run for its money. It is a cyclical industry that has historically been valued at a mid to high single digit price/earnings (P/E) ratio. Thus, Tesla’s three-digit P/E ratio has not gone down well with some fundamental purists.
Additionally, the company has a long history of over-promising and under-delivering. That’s not to say Tesla and CEO Elon Musk don’t deserve credit for a number of innovative electric vehicles and solutions. Rather, it’s to point out that the timeline at which products are expected to debut rarely materializes. For example, the Cybertruck will, at a minimum, be delayed by at least two years from its scheduled launch date.
Although Tesla is the first automaker to build itself from scratch to mass production in more than five decades, it still has a lot to prove.
Bath in bed and beyond: implied drop of 41%
Another ultra-popular stock that could be primed for a crash in 2022, according to Wall Street, is the furniture retailer Bed bath and beyond (NASDAQ:BBBY). Bank of America Securities analyst Jason Haas has lowered the company’s price target several times, with the latest forecast calling for $9.50 per share. Considering Bed Bath & Beyond closed above $16 last weekend, we’re talking about an expected drop of 41%.
Although the company’s shares are well below their 52-week high, they have effectively quadrupled from their pandemic low. There seem to be two reasons for this rebound. For starters, the business has remained mostly profitable despite challenges in the physical retail space.
The other catalyst was retail investors. Bed Bath & Beyond has become part of the meme stock movement in 2021 and has been heavily targeted by retail buyers hoping to catch a short squeeze.
While I’ve sometimes been a fan of the company’s turnaround efforts, Haas’ price target lends credence to the many challenges Bed Bath & Beyond faces. In no particular order, the company deals with:
- Supply chain concerns caused by the pandemic.
- Historically high inflation that pinches already very thin margins.
- Growing competition from online retailers who have lower overhead and an easier route to lower the price of Bed Bath & Beyond.
According to Haas, even if the company adds new fulfillment options, promotes direct-to-consumer sales, focuses on brand loyalty and sells non-core assets to strengthen its balance sheet, there is still a strong chance that its sales will lag over the next two years. . Based on the company’s 7% drop in comparable sales in the November quarter, Haas’s skepticism may well be warranted.
Ford Motor Company: implied decline of 33%
Rest assured, Tesla investors, you are not alone. According to analyst Adam Jonas of Morgan Stanley, Ford Motor Company (NYSE:F) could crash to $12 in 2022. This implies it would lose a further third of its value after losing more than a quarter of its market capitalization since January 14.
A recent research note from Jonas exposed the multiple reasons behind his downward trend on Ford. This included the expectation of higher input costs, increasing competition in the electric vehicle space, a cyclical average reversal for the entire automotive industry, and investors having unrealistic expectations for the launch. scale of electric vehicles, even in a post-pandemic environment.
Of the points Jonas hits, supply chain issues and inflation seem to be the most troublesome. Chip shortages clearly hurt Ford’s production volume last year, and rapidly rising prices for new and used vehicles could sideline buyers. In the very short term, Jonas’ thesis could hold up.
But longer term, I believe Ford is an exceptionally cheap company that has a multi-decade growth opportunity right on its doorstep. The Ford brand’s more than a century of history, along with its existing infrastructure, will help it become a key player in electric vehicles in the United States and China over time.
Additionally, the company’s F-Series truck (specifically the F-150) has been the top-selling truck in the United States for 45 consecutive years and, more importantly, the top-selling vehicle in the United States for 40 years. This kind of dominance and brand loyalty will translate positively as Ford ramps up its EV spending towards rolling out 30 new EVs globally by 2025.
The price is also right with Ford. Shares can be bought for less than nine times projected 2022 earnings. With a sustainably strong growth opportunity fueled by electric vehicles, Jonas’ decline may be taken with a grain of salt by long-term investors.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.