Bulletin
Investor Alert
Philip van Doorn

Deep Dive Archives | Email alerts

April 20, 2022, 6:42 a.m. EDT

20 high-volatility stocks you might want to avoid in a hair-trigger market

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    ARK Innovation ETF (ARKK)
  • X
    U.S. 10 Year Treasury Note (TMUBMUSD10Y)
  • X
    Russell 1000 Index (RUI)

or Cancel Already have a watchlist? Log In

By Philip van Doorn

Many technology stocks have gotten crushed in the high-inflation, rising-interest-rate environment of 2022. Some may have further to fall.

Investors with shorter-term horizons may wish to steer clear of more volatile, innovative companies, despite outperformance during the pandemic.

Those include 20 of the larger high-volatility names among the Russell 1000 Index are listed below.

Highly valued stocks get punished

Disruptive innovation is an investing style that grew popular during 2020, when so many companies selected by money managers under that type of strategy soared.

But the strategy has had difficult times since then. Now, with investors so sensitive to any signal about higher interest rates from the Federal Reserve, those volatile stocks may be best to avoid, even after significant declines.

Here’s a chart showing the total return of Cathie Wood’s Ark Innovation ETF /zigman2/quotes/204808965/composite ARKK -3.93% , the poster child for such stocks, since the end of 2019:

That’s quite a fall to Earth. Back in December, Wood famously doubled-down on her strategy, saying stocks she was holding had fallen into “ deep value territory .” She added that her strategy “could deliver a 30%-40% compound annual rate of return during the next five years.”

That was before ARKK dropped another 36% during 2022 through April 8. Wood may be correct that her style will do well over the very long term. But for investors who worry about the rest of 2022, the story may turn even uglier.

Why rising interest rates hurt disruptive innovators so badly

Inflation was already high during 2021, which caused investors to anticipate a change in Federal Reserve policy leading to a cycle of rising interest rates. That anticipation reversed course for many tech or innovative stocks trading high to estimated earnings.

We’re seeing more of it this year. The Fed only switched course in March when it raised the target range for the federal funds rate. The central bank hasn’t yet announced a reduction of its bond holdings, which held long-term rates low during 2020 and 2021. Still, the yield on 10-year U.S. Treasury notes /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -0.27% has increased to 2.75% from 1.51% at the end of last year.

“The market has already baked in two years of expected interest-rate increases,” said Robert Barone, a portfolio manager with Fourstar Wealth Advisors of Chicago.

Of course, we cannot know how long the Federal Reserve’s round of actual interest-rate increases and bond-portfolio reduction will last, but Barone thinks some people are in for a surprise. When the Fed previously tightened monetary policy during 2018, “they didn’t get very far until they drained some liquidity and the financial markets revolted.”

Kimball Brooker, who co-heads the Global Value Team at First Eagle Investments in New York, said a rising-rate environment can be especially hard on disruptive innovators because they tend to have “cash flow way out in the future that you are discounting today.”

“If you raise rates today, the discounts to future cash flows are higher,” Brooker said.

Screen of high-volatility stocks

This twitter posting sets the stage:

It’s a tough year for tech. To look forward, we began with the Russell 1000 Index /zigman2/quotes/210598144/delayed RUI -0.96% , because it includes many tech companies with high market capitalizations that aren’t yet included in the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.88% or other S&P indexes. We narrowed the list to the 644 with market capitalization of at least $10 billion as of Dec. 31. We then sorted the list by 12-month beta against the Russell 1000 Index.

A stock’s beta is a measure of volatility against an index, whose beta is considered 1.

Here are the 20 stocks among the 644 with the highest 12-month beta through April 8:

Company Ticker Industry 12-month Beta Forward P/E Price change – 2022 Price change – 2021 Price change – 2020
Upstart Holdings Inc. UPST-US Internet Software/Services 3.16 35 -40% 271% 34.8
Rivian Automotive Inc. Class A /zigman2/quotes/230726939/composite RIVN Motor Vehicles 3.01 N/A -63% 34.8 34.8
Block Inc. Class A /zigman2/quotes/205989440/composite SQ Information Technology Services 2.87 87 -24% -26% 248%
Trade Desk Inc. Class A /zigman2/quotes/207508089/composite TTD Advertising/Marketing Services 2.84 68 -26% 14% 208%
Bill.com Holdings Inc. /zigman2/quotes/215406166/composite BILL Software 2.75 N/A -20% 83% 259%
Cloudflare Inc. Class A /zigman2/quotes/214109260/composite NET Information Technology Services 2.61 2,336 -17% 73% 345%
Carvana Co. Class A /zigman2/quotes/206651606/composite CVNA Specialty Stores 2.45 35 -54% -3% 160%
Nvidia Corp. /zigman2/quotes/200467500/composite NVDA Semiconductors 2.39 38 -21% 125% 122%
MongoDB Inc. Class A /zigman2/quotes/203302825/composite MDB Software 2.38 35 -21% 47% 173%
Unity Software Inc. /zigman2/quotes/221035391/composite U Software 2.33 35 -37% -7% 34.8
DoorDash Inc. Class A /zigman2/quotes/222973991/composite DASH Internet Software/Services 2.31 35 -29% 4% 34.8
Wolfspeed Inc. /zigman2/quotes/204547734/composite WOLF Electronic Components 2.31 12,673 -7% 6% 129%
Snowflake Inc. Class A /zigman2/quotes/220991541/composite SNOW Software 2.25 969 -38% 20% 34.8
DraftKings Inc. Class A /zigman2/quotes/213120645/composite DKNG Internet Software/Services 2.21 35 -40% -41% 335%
GlobalFoundries Inc. /zigman2/quotes/230483311/composite GFS Semiconductors 2.21 27 -16% 34.8 34.8
ON Semiconductor Corp. /zigman2/quotes/202641012/composite ON Semiconductors 2.15 13 -22% 108% 34%
HubSpot Inc. /zigman2/quotes/209389444/composite HUBS Information Technology Services 2.15 166 -34% 66% 150%
Datadog Inc. Class A /zigman2/quotes/214127379/composite DDOG Software 2.13 231 -25% 81% 161%
DocuSign Inc. /zigman2/quotes/205992027/composite DOCU Software 2.13 50 -33% -31% 200%
Olaplex Holdings Inc. /zigman2/quotes/229722202/composite OLPX Household/Personal Care 2.11 27 -47% 34.8 34.8
Source: FactSet

Click on the tickers for more about each company.

Click  here  for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

The table includes forward price-to-earnings ratios, which aren’t available for many of the companies, because the consensus earnings estimates for the next 12 months among analysts polled by FactSet are expected to be negative. In comparison, the forward P/E ratio for the iShares Russell 1000 ETF is 20.8.

Don’t miss: These income strategies can help protect your stock investments from inflation and a recession

/zigman2/quotes/204808965/composite
US : U.S.: NYSE Arca
$ 39.88
-1.63 -3.93%
Volume: 28.03M
June 30, 2022 4:00p
loading...
/zigman2/quotes/211347051/realtime
add Add to watchlist BX:TMUBMUSD10Y
BX : Tullett Prebon
2.96
-0.0079 -0.27%
Volume: 0.00
June 30, 2022 11:59p
loading...
/zigman2/quotes/210598144/delayed
US : US Composite
2,075.96
-20.03 -0.96%
Volume: 4.04M
June 30, 2022 6:32p
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
3,785.38
-33.45 -0.88%
Volume: 2.68B
June 30, 2022 5:30p
loading...
/zigman2/quotes/230726939/composite
US : U.S.: Nasdaq
$ 25.74
-0.53 -2.02%
Volume: 11.63M
June 30, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$23.66 billion
Rev. per Employee
$14,393
loading...
/zigman2/quotes/205989440/composite
US : U.S.: NYSE
$ 61.46
-2.38 -3.73%
Volume: 16.79M
June 30, 2022 4:01p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$37.06 billion
Rev. per Employee
$1.94M
loading...
/zigman2/quotes/207508089/composite
US : U.S.: Nasdaq
$ 41.89
-1.45 -3.35%
Volume: 5.45M
June 30, 2022 4:00p
P/E Ratio
208.51
Dividend Yield
N/A
Market Cap
$21.08 billion
Rev. per Employee
$656,827
loading...
/zigman2/quotes/215406166/composite
US : U.S.: NYSE
$ 109.94
-4.61 -4.02%
Volume: 1.56M
June 30, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$11.94 billion
Rev. per Employee
$374,324
loading...
/zigman2/quotes/214109260/composite
US : U.S.: NYSE
$ 43.75
-2.12 -4.62%
Volume: 5.14M
June 30, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$14.96 billion
Rev. per Employee
$299,401
loading...
/zigman2/quotes/206651606/composite
US : U.S.: NYSE
$ 22.58
-0.53 -2.29%
Volume: 12.36M
June 30, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$4.36 billion
Rev. per Employee
$669,809
loading...
/zigman2/quotes/200467500/composite
US : U.S.: Nasdaq
$ 151.59
-3.83 -2.46%
Volume: 68.61M
June 30, 2022 4:00p
P/E Ratio
40.68
Dividend Yield
0.11%
Market Cap
$388.55 billion
Rev. per Employee
$1.31M
loading...
/zigman2/quotes/203302825/composite
US : U.S.: Nasdaq
$ 259.50
-17.27 -6.24%
Volume: 1.78M
June 30, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$18.85 billion
Rev. per Employee
$275,841
loading...
/zigman2/quotes/221035391/composite
US : U.S.: NYSE
$ 36.82
-2.70 -6.83%
Volume: 9.15M
June 30, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$11.70 billion
Rev. per Employee
$228,004
loading...
/zigman2/quotes/222973991/composite
US : U.S.: NYSE
$ 64.17
-3.25 -4.82%
Volume: 5.38M
June 30, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$26.80 billion
Rev. per Employee
$612,442
loading...
/zigman2/quotes/204547734/composite
US : U.S.: NYSE
$ 63.45
-1.31 -2.02%
Volume: 1.58M
June 30, 2022 4:01p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$8.01 billion
Rev. per Employee
$191,431
loading...
/zigman2/quotes/220991541/composite
US : U.S.: NYSE
$ 139.06
-3.97 -2.78%
Volume: 6.21M
June 30, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$45.50 billion
Rev. per Employee
$353,904
loading...
/zigman2/quotes/213120645/composite
US : U.S.: Nasdaq
$ 11.67
-0.74 -5.96%
Volume: 17.94M
June 30, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$10.43 billion
Rev. per Employee
$411,985
loading...
/zigman2/quotes/230483311/composite
US : U.S.: Nasdaq
$ 40.34
-2.72 -6.32%
Volume: 3.13M
June 30, 2022 4:00p
P/E Ratio
225.95
Dividend Yield
N/A
Market Cap
$22.90 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/202641012/composite
US : U.S.: Nasdaq
$ 50.31
-0.81 -1.58%
Volume: 6.87M
June 30, 2022 4:00p
P/E Ratio
15.45
Dividend Yield
N/A
Market Cap
$22.21 billion
Rev. per Employee
$240,103
loading...
/zigman2/quotes/209389444/composite
US : U.S.: NYSE
$ 300.65
-9.72 -3.13%
Volume: 451,330
June 30, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$14.83 billion
Rev. per Employee
$240,015
loading...
/zigman2/quotes/214127379/composite
US : U.S.: Nasdaq
$ 95.24
-3.13 -3.18%
Volume: 4.42M
June 30, 2022 4:00p
P/E Ratio
119,050
Dividend Yield
N/A
Market Cap
$30.99 billion
Rev. per Employee
$372,895
loading...
/zigman2/quotes/205992027/composite
US : U.S.: Nasdaq
$ 57.38
-3.66 -6.00%
Volume: 5.06M
June 30, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$12.20 billion
Rev. per Employee
$298,462
loading...
/zigman2/quotes/229722202/composite
US : U.S.: Nasdaq
$ 14.09
+0.24 +1.73%
Volume: 1.97M
June 30, 2022 4:00p
P/E Ratio
39.77
Dividend Yield
N/A
Market Cap
$8.99 billion
Rev. per Employee
$6.29M
loading...

This Story has 0 Comments
Be the first to comment
More News In
Investing

Story Conversation

Commenting FAQs »

Partner Center

Link to MarketWatch's Slice.