Equity strategists at Goldman Sachs
GS,
point out the cost of money is no longer next to nothing. The weighted average cost of capital for U.S. companies has gone from near the lowest level in history to 6%, the highest level in a decade.
The 200 basis point increase during the year is the largest 12-month rise in 40 years, and the Goldman team doesn’t expect a big drop anytime soon, as they think the Fed will pause once it takes rates between 5% and 5.25%.
Source: Goldman Sachs.
With rates these high, the strategists put together a list of companies with high cash burn rates and also lofty valuations, all of which are losing money, as they advised investors to avoid unprofitable long-duration equities. The lists includes electric vehicle makers Lordstown Motors
RIDE,
and Nikola
NKLA,
Source: Goldman Sachs.
“Unprofitable growth stocks will continue to face both elevated discount rate risk from a higher cost of capital and the additional risk from needing to source funding in an environment of tight financial conditions,” the Goldman team says.
One risk, however, to anyone wanting to short these companies: these are all prime candidates to get taken over.
The S&P 500
SPX,
closed lower on Monday and has dropped 17% this year.
