I took a look last week at a couple of stocks that have more than doubled so far this year. A few more interesting names have joined the ranks of big gainers.
Redfin (RDFN -2.07%), Coinbase Global (COIN -3.24%), and AppHarvest (APPH) are up 116%, 102%, and 269%, respectively, in 2023. You probably didn't have real estate, crypto, and high-tech farming on your list of leading industries this year, but that's where investors just happen to find themselves now. Let's take a closer look at what is 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 residential real estate slowed to a crawl late last year. The feeding frenzy where bidding wars routinely broke out on fast-selling properties came to an end. Demand dried up, and supply followed shortly after that.
As a high-tech provider of real estate services for buyers and sellers, Redfin was going to be vulnerable to a market slowdown. Making matters worse, it also dove headfirst into the home-flipping business. It wasn't turning a profit when home prices were on the rise. Redfin was naturally going to lose more money when the market started going the other way. It announced two months ago that it would wind down its RedfinNow iBuyer business.
Image source: Getty Images.
Shares that were approaching $100 just 12 months ago were trading below $5 by the end of last year. A rough finish line snapshot for 2022 has also been a great starting line for Redfin in 2023.
Analysts remain skeptical. Thomas Champion at Piper Sandler bumped the price target on the shares from $2 to $3 earlier this week, a move that isn't as encouraging as that may seem once you realize that Redfin is trading more than 3 times higher than the new price goal. Champion is naturally sticking to the stock's bearish underweight rating.
The good news for Redfin is that the real estate market is starting to show some signs of life. Despite the Federal Reserve rate hikes, mortgage rates have been drifting lower. The 30-year fixed rate on a home loan last week was almost a full point below where it was when the national average topped 7% in November. With inflationary pressures and the pace of the Fed rate hikes showing signs of cooling down investors are taking advantage of low-priced real estate stocks.
2. Coinbase Global
If you think the real estate market had a rough end to last year, shift your attention to the world of digital currencies. The crypto market was a disaster last year, and not just because prices for the leading cryptocurrencies plummeted. Several once popular platforms for traders collapsed, taking the assets they were holding down with them.
Coinbase is a survivor. It never took the risks that hungrier platforms did to generate staking yields, and its cash-rich balance sheet has helped it ride out the financial storm as crypto prices and platform assets contracted last year. With digital currencies inching higher again analysts are warming up to Coinbase as a way to ride the potential rebound in crypto.
Coinbase isn't the same highly profitable and fast-growing company it was when it hit the market two years ago. Wall Street doesn't see it generating positive net income again anytime soon. Analysts see revenue topping $4 billion by 2025, but that is still a little more than half of what it generated when the business peaked in 2021. These projections can naturally improve if cryptocurrencies keep climbing and traders come back, but the long-term risks remain until that bullish thesis plays out.
3. AppHarvest
AppHarvest investors are finally starting to see some green at the nascent vertical farming company. The stock that hit the market at $10 two years ago entered 2023 as a penny stock trading 94% below its debutante price. It's one of this young year's biggest gainers -- up a scorching 269% -- but it would still have to pop nearly fivefold from here to get back to its original $10 starting line.
AppHarvest is trying to put a new-tech spin to conventional commercial farming. It operates climate-controlled indoor facilities that can be as large as 60 acres, leaning on a next-gen touchless growing system to autonomously harvest tomatoes, cucumbers, and other essentials. It has spent a lot of money on expanding its reach to four cutting-edge farms, incinerating $270 million in accumulated deficit against a mere $13.1 million in trailing revenue.
Despite the stock's surprising rally in 2023, a lot of people continue to bet against AppHarvest. Short interest currently stands at nearly 18% of the shares outstanding. A short squeeze is likely behind this year's bounce, but you can't blame the naysayers. The red ink is taking its toll on the greens specialist. Late last year it entered into its third restructuring plan to trim operating costs, warning about its own viability as a going concern in its latest financial filings. These very risky designations typically don't end well.
