The markets faced a big shock because of the black swan event of the pandemic. As economies were crawling back to normalcy, the Russia-Ukraine war triggered fresh concerns for several sectors of the economy. The war catalyzed an increase in the list of battered stocks in 2022.
With the Russia-Ukraine war, oil prices surged, translating into broad-based inflation for the global economy. While commodity producers benefited, the consumers of commodities were impacted. The war has also resulted in supply chain headwinds, contributing to higher inflation.
Among battered stocks, some companies had meaningful exposure to Russia. This includes companies with retail operations or companies having commodity assets. I believe that most of the concerns related to the Russia-Ukraine war have been discounted in these stocks. I remain cautiously optimistic.
Let’s talk about three battered stocks since the Russia-Ukraine war began.
Carnival Corporation (CCL)
Carnival Corporation (NYSE:CCL) stock was struggling due to the pandemic. The company had over-leveraged and diluted equity to stay afloat. Just as the recovery began, Carnival faced the headwind of the Russia-Ukraine war. For year-to-date 2022, CCL stock has plunged by 62%. It seems likely that the challenging environment will continue for the company in 2023.
An immediate impact of the Russia-Ukraine was a surge in fuel prices. It’s worth noting that Carnival reported revenue of $8.3 billion for the first nine months of 2022. However, EBITDA-level losses have been sustained.
Another impact of the war is on the global supply chain and trade. There are several reasons to expect a recession in 2023; the war is one of the catalysts. A possible recession will impact cruise travel, and cash burn might sustain in the coming years. As credit metrics remain stressed, CCL stock will remain subdued.
Kinross Gold (KGC)
The war has also compelled several businesses to exit from Russia. The losses have been meaningful as the exit can be likened to distressed asset sales.
Kinross Gold (NYSE:KGC) has been among the victims of the war. In April, it was reported that Kinross would be selling its gold mining assets in Russia for a consideration of $680 million. However, the Russian sub-commission on controlling foreign investments approved the transaction for only $340 million.
First, KGC stock was impacted due to lower-than-expected cash inflow from the asset sale. Furthermore, the company’s production guidance for the coming years was impacted.
Regardless, these factors have already been discounted in the stock price. KGC stock looks attractive, with a strong cash buffer and steady production visibility for the next few years. Notably, the company has guided for free cash flows even if gold trades around $1,700 to $1,800 an ounce.
PepsiCo’s (NASDAQ:PEP) stock is not among the names that have plunged. However, it’s worth talking about Pepsi for two reasons. The company was one of the longest-operating U.S. businesses in Russia. Furthermore, Russia was the second largest international market for the company, after Mexico.
I also wanted to talk about Pepsi because the company is expected to eliminate hundreds of jobs in North America. With rising costs impacting consumers and a potential recession in 2023, the outlook is challenging.
For Q3 2022, the company’s revenue beat estimates. However, it was on the back of an increase in price even as volumes declined in some business units. It’s also worth noting that PEP stock is trading at a forward price-earnings ratio of 26.3. If there is an earnings guidance revision on the downside in 2023, the stock will likely witness a meaningful correction.
On the date of publication, Faisal Humayun did not hold (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 InvestorPlace.com Publishing Guidelines.