When Wall Street shows reluctance towards a particular stock, it’s worth taking notice, especially when analysts unanimously agree that a stock isn’t a Buy. This is precisely the case with 13 stocks in the large-company Russell 1000 index that have received zero Buy ratings, which is quite unusual. Out of the 970 stocks covered by more than five analysts, about 99% of them have at least one Buy rating. In fact, the average Buy-rating ratio for stocks in the Russell 1000 index stands at approximately 55%. Let’s delve deeper into these unappealing stocks and understand why they have failed to impress the Street.
The Unfavorable Stocks
Among the roster of stocks devoid of any Buy ratings, some prominent names include T Rowe Price (TROW) and Principal Financial (PFG) – both money managers. Additionally, Janus Henderson (JHG) and Franklin Resources (BEN), two other money managers, fail to garner any Buy ratings as well. Real estate manager Vornado Realty Trust (VNO), tech consultant DXC Technology (DXC), consumer staples provider Hormel Foods (HRL), and trucking firm Landstar System (LSTR) also find themselves in this undesirable position. Furthermore, 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) complete the list of unattractive stocks.
The Reasons for Disenchantment
Several factors contribute to why these 13 stocks fail to impress investors. Money managers, banks, and insurance providers find themselves adversely affected by either rising interest rates or the shape of the Treasury yield curve. Meanwhile, staples companies such as Hormel have fallen out of favor with investors recently. Regardless of the specific reasons, it is evident that these stocks lack Buy ratings, as reported by Bloomberg.
When it comes to investing, contrary to popular belief, consensus doesn’t always guarantee success. In fact, it often makes us wonder if there’s an opportunity hiding on the other side of the trade. This holds true for a group of 13 stocks that have caught our attention. While they may not be expensive, trading at around 12 times their 12-month forward earnings (excluding AMC, which is currently unprofitable), their attractiveness becomes evident when compared to the S&P 500’s price-to-earnings ratio of approximately 18 times.
Valuation Alone is Not Enough
While their valuation might be enticing, purchasing these stocks solely based on that premise isn’t a sound investment strategy. It’s important to consider the expected growth rate of these stocks, which averages around 4% per year over the next three years. This pales in comparison to the S&P 500’s projected growth rate of 9%. Furthermore, this group of 13 stocks has underperformed, with investors experiencing an average loss of about 7% over the past 12 months, while the S&P 500 gained an impressive 21%.
A Consistent Pattern
This poor performance is not an isolated incident tied to timing alone. In fact, in October 2022, nine stocks from the Russel 1000 Index were devoid of any Buy ratings. These stocks have collectively dropped by an average of around 21% over the past year, while the S&P 500 has thrived with a growth rate of approximately 20%. Out of those nine stocks, only two managed to rise in value: Brighthouse and Commerce Bancshares. However, neither of them outperformed the broader market.
The Continuing Saga
The story doesn’t end there. Seven out of those nine unloved stocks have found their way onto the most-unloved list for 2023 as well. These include Franklin, Janus, First Hawaiian, Commerce Bancshares, Landstar, Brighthouse, and AMC. Hawaiian Electric (HE) and Rayonier (RYN) were also a part of the initial nine stocks, but they no longer share that distinction. Rayonier now boasts one Buy rating, whereas Hawaiian Electric is covered by only four analysts, none of whom have rated it as a Buy.
A Contrarian Opportunity?
While it’s tempting to view this most-unloved list as a potential playground for contrarian investors searching for turnaround situations, it’s worth noting that a lack of Buy ratings on Wall Street is a rare occurrence. Therefore, it’s crucial for investors to conduct thorough research before considering any investment in these cautionary stocks.
Sometimes, Wall Street gets it right.