the most recommended actions are hardly superior to the most despised
John Dorfman
If anyone can predict the future, you’d think it would be Wall Street analysts. They have degrees from Harvard, Yale, things like that. They receive generous salaries. They have modern computer programs and smart assistants that work long hours.
However, in my 25-year study comparing the stocks that analysts like most at the start of each year with the stocks they most despise, the balance is almost equal.
Analyst favorites posted an average gain of 6.7%. The stocks they despise are up an average of 6.5%. Meanwhile, the Standard & Poor’s 500 Total Return Index posted an average gain of 12.1%.
My research covers the years 1998 to 2023, excluding 2008 when I temporarily stepped down as a columnist. Each year, I look at the four stocks with the most unanimous approval from analysts and the four stocks with the highest percentage of sell recommendations.
The study only includes U.S. stocks covered by four or more analysts. Minimum market value is $500 million. I used Zacks Investment Research as my source for analyst ratings.
Favorite stocks outperform despised ones by 13 out of 25 times. Scorned stocks have won 11 times and had one draw in 1998.
Compared to the S&P 500, analysts’ favorite stocks are up just eightfold. The hated shares grew 10-fold.
2023 results
Last year, analysts did a little better than usual. Your favorite stocks returned an average of 25.6% in 2023, outperforming the S&P by 26.3%. The despised stock rose 9.2% last year.
Karuna Therapeutics (KRTX), which entered 2023 with 19 analyst buy recommendations and none against it, is up 61%. He is working on drugs for schizophrenia and dementia-related psychoses. Of the 20 analysts currently covering the stock, 18 rate it a Buy.
S&P Global (SPGI), which has 18 buy recommendations, increased by 33%. T-Mobile US (TMUS), which had 15 recommendations (and none against) at the start of the year, gained 15%, a good gain, but not as good as the S&P. Schlumberger (SLB), which received 18 unanimous votes, fell about 3%.
Among undervalued stocks, only Southern Copper (SCCO) performed well. It rose nearly 43% as widespread forecasts of a U.S. recession proved inaccurate.
Clorox (CLX) and Greif (GEF) posted modest gains, while American States Water (AWR) fell 11%.
The most favorite stocks right now
Schlumberger, which was ranked second by analysts a year ago, rose to first place with 20 affirmations and no dissents. It has a reputation as a leading oilfield services company with advanced reservoir mapping and well construction technologies. Like the analysts, I like this stock.
S&P Global moved up to second place from third. It has 19 buy recommendations and no hold or sell recommendations. S&P is the world’s largest bond rating agency and also provides financial information. I think analysts are expecting a rebound in bond issuance, which has been low lately.
The third most valuable stock is Targa Resources (TRGA), a natural gas processing and pipeline company based in Houston. It’s not for me because debt is five times equity and the price-to-book ratio (share price divided by the company’s net worth per share) is over seven.
The fourth-ranked analyst favorite is Arlington, Virginia-based Privia Health Group (PRVA). It describes itself as “a multidisciplinary medical group led by leading independent physicians.” I like Privia’s net balance sheet, but otherwise it doesn’t impress me enough to buy the stock.
The most despised stocks of 2024
Analysts’ top stock for 2024 is Avista Corp (AVA), with three sell ratings out of four reviews. It is an electric and natural gas generation company based in Spokane, Washington, serving the Pacific Northwest.
I think fear of legal liability associated with wildfires explains the reluctance of some analysts. On the plus side, Avista offers a dividend yield of 5%.
Moelis & Co. (MC) comes in second with four Sell ratings from six reviews. The investment banking firm’s profits fell sharply last year and revenue has been on a long-term downward trend. Subscription deals were scarce in 2023, but perhaps 2024 will be better.
The third most despised stock is Southern Copper, which performed well last year despite being hated by analysts. Will these stocks be able to defy gloomy analyst forecasts again? Perhaps, but I think the shares are well valued.
Rounding out the list is the much despised Chenierre Energy Partners (CQP), which operates liquefied natural gas terminals. It has seven “sell” ratings from 11 reviews. Analysts favor its parent Chenierre Energy (LNG), with 16 Buy ratings.
Can your favorite stocks beat your despised ones this year? Based on past experience, it’s almost 50/50.
Information: John Dorfman He has no positions in the stocks analyzed in today’s column, either personally or for clients.
Original note written in English in Forbes.com and published in Spanish by Forbes Argentina.
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