David Trainer, CEO of investment research firm New Constructs, said capital stocks that are burning money are about to take a hit. That’s because interest rates will be even higher, meaning liquidity will start to dry up, he added. “As liquidity tightens, people are less likely to lend to zombie companies,” Trainer told CNBC on “Street Signs Asia” last week. “They don’t have a lot of cash. They burn money quickly and it won’t last long. And it will be very difficult for them to refinance.” Federal Reserve Chairman Jerome Powell said in his speech at the annual economic symposium in Jackson Hole that he expects the central bank to continue to raise interest rates to combat inflation in a way that will cause ” some pain” for the US economy. That comes after a period of loose monetary policy and several years of bull markets in the United States, with liquidity flooding economies as central banks around the world began cutting interest rates. This year, however, central banks have gradually tightened policy and US markets fell into bearish territory in the first half of the year. “These are going to have a contagion effect, because once zombie stocks start to decelerate… you’ll have a lot of people being forced to sell because they’re over-exploited. And because they want protection. his meager capital has left,” said Trainer. “And it will release all of this speculation and bubble-like behavior that we’ve seen over the last few years, in my opinion,” he added. Zombie stocks to avoid Trainer, a former Wall Street analyst who was once bearish on tech stocks, identified a list of so-called “zombie” stocks that he claims are ” at risk of going down to $0.” Zombie companies refer to companies that have been in the market for more than 10 years and make enough money to operate, but do not pay interest on their debt. According to Trainer, such “cash-burning” companies are very risky, especially in the current market environment. Being forced to raise capital in this environment, even if the company is ultimately profitable, the high costs will not be good for existing shareholders, he said. He added: “As the cash-burning ‘zombie companies’ run out of cash, the risk premium will increase in the market, which could further squeeze liquidity and create a flurry of cases.” corporate insolvency”. Trainer identified the stocks most likely to run out of cash first, based on burning free cash flow as well as cash on their balance sheets over the past 12 consecutive months of a company’s finances. company. These are: electric vehicle maker Rivian, game retailer GameStop, commerce app Robinhood, and social media company Snap. Better Bets Trainer says investors should consider these three stocks instead. Qualcomm. According to Trainer, the US chipmaker is well positioned in the highest growth markets for semiconductors, namely the internet of things, edge computing, automotive entertainment, etc. He said the stock is cheap. and set a price target of $170 – up almost 23% from current price. TotalEnergies. According to Trainer, demand for energy is on the rise and that could benefit the French company, which is developing its renewable energy business – including developing solar power sources, wind and biofuels – according to Trainer. He also said the stock looks cheap right now and offers a price target of more than 80% upside. Valvoline. Trainer called the US company that makes automotive lubricants and lubricants a “wonderful business”. “It has a high return on investment and is not threatened by the shift to electric vehicles (EVs), as electric vehicles also need maintenance and Valvoline produces electric vehicle fluids,” he said. He has a price target of $40, or up 36%.
