Redfin (RDFN -2.62%), Global currency base (COIN -3.47%) AND AppHarvest Apple Inc. (APPH -2,48%) stocks are up 116%, 102%, and 269%, respectively, in 2023. You probably didn't have real estate, crypto, and high-tech agriculture on your list of leading sectors this year, but that's where investors find themselves now. Let's take a closer look at what's driving these monster rallies in some of last year's hardest-hit investments.
1. Redfin
With mortgage rates and inflationary pressures rising, it's easy to see why the residential real estate sector slowed late last year. The feeding frenzy in which bidding wars for fast-selling properties regularly erupted ended. Demand dried up, and supply soon followed.
As a high-tech provider of real estate services for buyers and sellers, Redfin would be vulnerable to a market downturn. To make matters worse, he also dove headfirst into the home-tipping business. He wasn't making a profit when home prices were rising. Redfin would naturally have lost more money when the market started to turn south. He announced two months ago that he would close his RedfinNow iBuyer business.
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Shares that were approaching $100 just 12 months ago were trading below $5 at the end of last year. A rough snapshot of the finish line for 2022 was also a great starting line for Redfin in 2023.
Analysts remain skeptical. Thomas Campione Piper Sandler Champion Inc. raised its price target on the stock from $2 to $3 earlier this week, a move that isn't as encouraging as it might seem when you realize that Redfin is trading at more than 3 times the new price target. Champion naturally sticks to its underweight rating on the stock.
The good news for Redfin is that the housing market is starting to show some life. Despite the Federal Reserve's rate hikes, mortgage rates have fallen. The 30-year fixed rate on a home loan last week was nearly a percentage point lower than the national average, which surpassed 7% in November. With inflationary pressures and the pace of Fed rate hikes showing signs of cooling, investors are taking advantage of cheap real estate stocks.
2. Coinbase Global
If you think the real estate market ended badly last year, turn your attention to the world of digital currencies. The cryptocurrency market was a mess last year, and not just because the prices of major cryptocurrencies plummeted. Several once-popular trading platforms collapsed, taking their holdings with them.
Coinbase is a survivor. It never took on the risks posed by more eager platforms for staking returns, and its cash-rich balance sheet helped it weather the financial storm as cryptocurrency prices and platform assets contracted last year. With digital currencies rising again, analysts are gearing up for Coinbase as a way to capitalize on a potential cryptocurrency recovery.
Coinbase isn't the same highly profitable, fast-growing company it was when it launched two years ago. Wall Street doesn't see it generating positive net income again any time soon. Analysts expect revenue to exceed $1.4 trillion by 2025, but it's still just over half of what it generated when activity peaked in 2021. These projections could naturally improve if cryptocurrencies continue to rally and traders return, but long-term risks remain until this bull case plays out.
3. AppHarvest
AppHarvest investors are finally starting to see some green in the fledgling vertical farming company. The stock, which debuted at US$$ 10 two years ago, entered 2023 as a penny stock, trading 94% below its debut price. It's one of the biggest gainers this young year—with an impressive 269%—but it would still need to break nearly fivefold from here to return to its original starting line of $ 10.
AppHarvest is seeking to make a technological breakthrough in conventional commercial agriculture. It operates air-conditioned indoor facilities that can be up to 60 acres in size, featuring a state-of-the-art, contactless cultivation system for self-harvesting tomatoes, cucumbers, and other essentials. It has spent heavily expanding its reach to four state-of-the-art farms, incinerating US$1,400,000 in accumulated deficit against just US$1,310,000 in final revenue.
Despite the stock's surprising recovery in 2023, many are still betting against AppHarvest. Currently, short interest is nearly 18% of outstanding shares. A brief squeeze on the back of this year's recovery is likely, but you can't blame the bears. Red ink is overwhelming the green specialist. Late last year, it entered its third restructuring plan to cut operating costs, warning about its viability as a going concern in its latest financial statements. These very risky designations usually don't end well.
Rick Munarriz holds positions in Redfin. The Motley Fool holds positions in and recommends Coinbase Global and Redfin. The Motley Fool recommends AppHarvest and recommends the following options: $ February 7, 2023 short calls on Redfin. The Motley Fool has a disclosure policy.
