OpenDoor (NASDAQ:OPEN) stock is the kind of name I’ve learned to avoid.
Over my years of investing, I’ve learned–in some cases, the hard way — that buying stocks on weakness is really the best and easiest way to make money in the market. Conversely, buying risky names that are riding positive momentum often leads to sharp losses.
That is how I see OpenDoor stock.
The shares are riding a steep uptrend, as they’re trading around a six-month high. Not only that, but the housing market, to which the fortunes of OpenDoor are closely linked, is flying high as well. Also important to consider is that the housing sector is facing some steep macro risks.
In my last column on OPEN stock, published in May, I noted that another InvestorPlace contributor, Luke Lango, reported that OpenDoor had benefited from a 57% year-over-year surge of website visitors in the first quarter.
The company’s growth continued to be impressive in Q2, as its sales soared to $1.185 billion, versus $740 million during the same period a year earlier.
The number of homes that it bought jumped 13% YOY, reaching nearly 8,500.
Given the company’s continued, impressive growth, I think that its brand is likely strengthening a great deal as many more Americans become familiar with the company and its services.
Consequently, I’m much less worried about the power of its brand than I was in May.
OPEN Stock and the Housing Market
Currently trading near its highest levels since March, OpenDoor rallied around 20% in the past five trading days and 39% in the past month.
Also on a tremendous upsurge is the U.S. housing market. According to the St. Louis Fed, the median U.S. home price jumped from $322,000 in Q2 of 2020 to $375,000 in Q2 of 2021.
With OPEN stock and the U.S. housing market seemingly in a state of near-euphoria, both seem ripe for a pullback within the next three to 12 months.
Macro Risks Have Risen
In my previous column on OPEN stock, I cited the risk of higher interest rates as a key problem for the shares. Although rates have climbed recently, they remain historically extremely low and have obviously not yet hurt the shares.
Yet I believe that the macro risks have risen significantly since May.
“Median expectations for what inflation will be over the next year rose for the eleventh consecutive month {in September} to 5.3%, the highest level since the survey was launched in 2013,” Reuters reported on Oct. 12.
Meanwhile, the IMF on Oct. 12 lowered its 2021 economic growth forecast for the U.S. to 6% from 7%, citing the impact of inflation, as well as supply chain issues and the Delta variant of the novel coronavirus.
I still think that the U.S. economy has multiple, key positive catalysts and I believe that it will probably continue to do fairly well.
I would not, however, be too surprised to see growth slow to just over one percentage point above inflation by the end of the year and into 2022.
In such an environment, the demand for homes would probably drop meaningfully, hurting OPEN stock.
What’s more, high inflation could conceivably force the Fed to tighten more quickly than it would like, leading to a surge in interest rates that would also meaningfully reduce the demand for housing in the U.S.
The Bottom Line on OPEN Stock
Both Opendoor’s shares and the housing market seem to be at the top of their games, so to speak. And both are facing big macro risks over the next three months to a year.
Consequently, I advise waiting for a large pullback in the name or more clarity on the macro front before taking a positive position in the shares.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.