Stocks to sell

Electric vehicle (EV) startup Rivian Automotive (NASDAQ:RIVN) plans to release its second-quarter 2022 fiscal results on Aug. 11. It might be tempting to load up on RIVN stock beforehand. However, Rivian is reducing its workforce. That’s not a positive sign. Also, the company is acknowledging problems related to a climate deal proposal in Congress, as well as other issues.

Rivian might get a lot of attention among traders, but the company still has to prove itself as a viable business. The EV market is fiercely competitive. Plus, Rivian’s shareholders can only remain patient for so long, as the breakout moment has been elusive in 2022 so far.

Could Aug. 11 provide that breakout moment? Anything’s possible, but don’t be hasty about jumping into the trade. More important than any single earnings event is the company’s overall prospects and the macro environment, which, Rivian’s management seems to acknowledge, is less than ideal.

What’s Happening With RIVN Stock?

RIVN stock was worth $100 at the start of 2022, but supply-chain disruptions and inflation have evidently taken their toll. In the weeks leading up to Rivian’s quarterly data release, shares traded in the $30 range.

Granted, a positive earnings surprise is always possible. Reportedly, the analyst community expects Rivian to report a second-quarter earnings loss of $1.67 per share on $338 million in revenue.

Now, let’s consider what this means. Even if Rivian’s bottom-line results are in line with Wall Street’s expectations, the company would still show a $1.67-per-share loss when the stock is around $30 or $40. Mind you, this isn’t a brand-new company. Rivian remains unprofitable after having been in operation for years, and that’s a red flag for cautious investors.

Management’s Warnings About Rivian

Even the company itself is providing warnings lately about issues that could cause problems. Here’s a direct quote from CEO RJ Scaringe:

“Over the last six months, the world has dramatically changed with inflation reaching record highs, interest rates rapidly rising and commodity prices continuing to climb — all of which have contributed to the global capital markets tightening.”

It sounds like the CEO is offering excuses for some bad news. Indeed, Rivian announced that it’s laying off 6% of its workforce. On one hand, cost-cutting measures can help boost a company’s bottom line. Yet, layoffs also can be interpreted as a red flag, as thriving businesses are typically growing, not shrinking.

Furthermore, Rivian provided a warning about the climate spending deal between Senator Joe Manchin and Senate Majority Leader Chuck Schumer. The proposed legislation would extend a $7,500 federal tax credit for EVs.

However, it would also add new restrictions which could make many of Rivian’s vehicles ineligible for the incentives. The implication here, presumably, is that the proposal would incentivize the purchase of other EV manufacturers’ cars instead of Rivian’s vehicles.

What You Can Do Now

It can be exciting to buy stocks as a major earnings event approaches. However, it’s more important to consider the big picture.

Even Rivian’s management seems to admit that the big picture is highly challenging for Rivian now. So, don’t feel pressured to take a position in this unprofitable automaker. It’s fine to stay on the sidelines and see how Wall Street reacts to Rivian’s earnings report.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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