For more than a century, the stock market has been a wealth-building machine. The average annual return of the major U.S. indexes has handily surpassed the average returns of other asset classes, such as bonds and commodities, over the long run. But…
just because the aggregate value of equities rises over time, it doesn’t mean all stocks are going to be winners. Even though Wall Street analysts and investment banks are best-known for cheering on innovation, there are instances where they expect well-known stocks to head lower.
Based on the lowest published price target from Wall Street, the following three stocks are expected to plunge between 42% and 92% in 2022.
Tesla Motors: Implied decline of 92%
It likely comes as no surprise that electric vehicle (EV) kingpin Tesla Motors (NASDAQ:TSLA) is a highly polarizing stock among Wall Street analysts. While some believe the company could nearly double in value from the $829 a share it closed at on Jan. 27, Gordon Johnson at GLJ Research foresees Tesla falling more than 90%, based on his price target of $67 for the company.
To be fair, Tesla has done a lot of things right. CEO Elon Musk built the company from the ground-up to mass production. Tesla is the first automaker in more than five decades to successfully enter the auto market and reach mass production.
Tesla has also had no issues with consumer demand, as evidenced by its production ramp and deliveries. When 2021 began, Tesla was expected to be in the neighborhood of 750,000 EV deliveries for the year. But when the curtain closed, the world’s most valuable automaker had delivered more than 936,000 EVs. With the gigafactory in Austin, Texas, set to open soon, Tesla will have plenty of opportunity to increase production to meet growing consumer EV demand.
But there are plenty of reasons to be skeptical of Tesla and its $833 billion valuation. For example, even though Elon Musk’s innovation has been a driving force behind his company’s success, he’s also been something of a liability. Musk’s social media presence has previously got him in trouble with regulators, and his forecasted timeline for new product rollouts is almost always far too ambitious. Most new vehicles roll off the assembly line later than expected. Additionally, the company’s full self-driving (FSD) software remains something of a work in progress, despite Musk touting FSD’s potential for more than five years.
Another clear issue is Tesla’s valuation. Auto stocks are traditionally valued at single-digit price-to-earnings (P/E) ratios to reflect their generally high debt levels and the cyclical nature of the auto industry. Tesla has consistently sported a forward-year P/E ratio in the triple digits.
With other major automakers spending tens of billions of dollars on EV and battery research, it’s likely that Tesla’s competitive edge will shrink over time, as well. While a $67 price target is probably too bearish given Tesla’s current competitive advantages, I do believe downside is warranted.
Moderna: Implied decline of 42%
A second extremely popular stock one Wall Street investment bank believes will plunge in 2022 is biotech stock Moderna (NASDAQ:MRNA). According to analyst Mani Foroohar of SVB Leerink, Moderna is on track to hit $86 this year, which implies downside of 42% in the company’s shares.
Most people are probably familiar with Moderna given the role it’s played in combatting the coronavirus disease 2019 (COVID-19). The company’s vaccine, mRNA-1273, produced a 94.1% vaccine efficacy (VE) in U.S. clinical trials, which were reported in November 2020. To date, it’s one of only three vaccines to have generated a VE of 90% or higher. Although VE isn’t the only measure of success for COVID-19 vaccines, it’s the headline figure a lot of people are using when deciding which vaccines or booster shot to receive.
To add, the mutability of the SARS-CoV-2 virus that causes COVID-19 is a potential positive for Moderna. While we’d prefer to see COVID-19 go away completely or mutate into less-severe forms, new variants of the disease provide Moderna with recurring revenue opportunities, either with booster shots or variant-specific vaccines.
However, competition among COVID-19 treatments is only growing. Aside from COVID-19-specific vaccines still in development, competitors are working on…
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