Wall Street is reluctant to get too bearish on a stock, but when it does, it can be worth paying attention—especially when the analysts agree that a stock isn’t a Buy.
There are 13 stocks in the large-company
Russell 1000 index
covered by at least five analysts that have no Buy ratings at all. That’s unusual. Of the 970 or so stocks with more than five analysts, roughly 99% of them have at least one Buy rating. What’s more, the average Buy-rating ratio for stocks in the Russell 1000 index is about 55%.
The average number of analysts covering Russell 1000 stock is about 19.
The 13 stocks with no Buy ratings include money managers
T Rowe Price
(TROW),
Principal Financial
(
PFG
),
Janus Henderson
(JHG), and
Franklin Resources
(BEN), real estate manager Vornado Realty Trust (VNO), tech consultant DXC Technology (DXC), consumer staples provider
Hormel Foods
(HRL), trucking firm
Landstar System
(LSTR), insurance provider
Brighthouse Financial
(BHF), theater operator
AMC Entertainment
(AMC), banks Commerce Bancshares (CBSH) and
First Hawaiian
(FHB), as well as industrial and communications technology hardware and software provider
National Instruments
(NATI).
| Company / Ticker | Recent Price | Market Cap (bil) | PE Ratio | Return, Last 12 Months | Total Ratings |
|---|---|---|---|---|---|
| T Rowe Price/TROW | $104.03 | $23.3 | 13.9 | -3.8% | 12 |
| Landstar/LSTR | 178.29 | 6.4 | 20.9 | 19.8 | 16 |
| Principal Finanical/PFG | 69.74 | 16.9 | 9.7 | -7.7 | 16 |
| Franklin Resources/BEN | 23.89 | 11.9 | 9.7 | 9.4 | 12 |
| Vornado Realty/VNO | 21.53 | 4.1 | 8.5 | -2.0 | 13 |
| DXC Technology/DXC | 22.04 | 4.5 | 6.0 | -20.5 | 12 |
| Hormel/HRL | 36.05 | 19.7 | 21.0 | -15.8 | 12 |
| Brighthouse/BHF | 47.6 | 3.1 | 2.8 | -1.1 | 11 |
| Janus Henderson/JHG | 24.73 | 4.1 | 10.5 | 23.6 | 11 |
| AMC/AMC | 9.82 | 1.9 | N/A | -87.0 | 8 |
| Commerce Bancshares/CBSH | 47.99 | 6.0 | 13.7 | -27.2 | 7 |
| First Hawaiian/FHB | 18.02 | 2.3 | 10.2 | -26.4 | 8 |
| National Insturments/NATI | 59.98 | 8.0 | 22.1 | 49.0 | 6 |
Source: Bloomberg
There are reasons the Street doesn’t like those 13. The money managers, banks, and insurance providers, to some extent, are hurt by either rising interest rates or the shape of the Treasury yield curve. Staples companies such as Hormel have been out of favor with investors lately. Whatever the reason, the stocks simply have no Buy ratings, according to Bloomberg.
When we see that kind of consensus, we usually want to start thinking about taking the other side of the trade. The fact that the 13 stocks aren’t expensive—they trade at about 12 times 12-month forward earnings, not including AMC, which isn’t profitable—only makes them more enticing, particularly compared with the
S&P 500,
which trades for closer to 18 times.
Valuation alone, though, isn’t a good enough reason to buy. Consider the fact that the stocks are expected to grow earnings at about 4% a year on average for the coming three years, well below the S&P 500’s 9%. What’s more, that group of 13 stocks has lost investors an average of about 7% over the past 12 months, while the S&P 500 has gained about 21%.
This isn’t just a fluke of timing either. In October 2022, there were nine stocks in the Russel 1000 with no Buy ratings. Those stocks are down an average of about 21% over the past 12 months. The S&P 500 is up about 20% over the same span. Only two of the nine stocks—Brighthouse and Commerce Bancshares—rose and neither outperformed the market.
Seven of those nine stocks repeated on the 2023 most-unloved list: Franklin, Janus, First Hawaiian, Commerce Bancshares, Landstar, Brighthouse, and AMC. Hawaiian Electric (HE) and Rayonier (RYN) were the other two, but both have fallen off the list. Rayonier now has one Buy rating, while Hawaiian Electric is only covered by four analysts (none rate it a Buy).
There is a possibility that the most unloved list is an opportunity for contrarian investors to look for turnaround situations. But a lack of a Buy rating on Wall Street is rare, and the data suggests investors should do their homework—and do it well—before jumping into the stocks they all agree should be treated with caution.
Sometimes Wall Street just happens to be right.
Write to Al Root at [email protected]
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