Wall
Street really hates giving any stock a ‘sell’ rating
Published: June 26, 2017 1:57 p.m.
ET
Not a single S&P 500
stock has majority ‘sell’ ratings from analysts
![](MarketWatch%2020170626%20image%20x40.png)
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Con Edison has the highest percentage of “sell” ratings from
analysts among all S&P 500 stocks. |
A new set of data from FactSet
underlines why investors need to take stock ratings provided by
brokers with a grain of salt: Not a single S&P 500 company has
majority “sell” ratings.
A year ago
there was just one.
Of the 11,257 ratings that analysts have
on S&P 500
SPX stocks, 49% are “buy”
ratings, 45% are neutral — and only 6% are “sell” ratings,” according
to a June 23 report from FactSet analyst John Butters.
A “sell-side” analyst is one who works
for a brokerage firm or on the brokerage side of an investment bank,
providing research reports and ratings to brokerage clients and often
making them available to the financial media. The firm’s bankers also
use the reports when pitching for business. A “buy-side” analyst is
one who works for professional investors, including hedge funds.
So sell-side analysts are the ones being
quoted most often, especially when you see monotonous quarterly
headlines saying which companies have beaten or missed consensus
earnings estimates. Their earnings estimates and ratings, in turn, can
help drive stocks higher, so it’s important to consider their
opinions.
It may not surprise you that most
companies beat estimates each quarter, no matter what is going on in
the economy. If sales and earnings are weak, analysts will often lower
their estimates heading into earnings season, sometimes in response to
companies lowering their earnings guidance.
A conversation with almost any sell-side
analyst will highlight a deep level of knowledge of the industry he or
she covers, along with an approach to ratings that is based on price
targets, which themselves are based on estimates for sales, earnings
and cash flow. But there’s no denying that analysts shy away from
placing the equivalent of a “sell” rating on a stock, or that “good
news” (including good ratings) makes it easier for brokerage companies
to earn commissions as investors buy shares.
Gary Lutin, the chairman of the
Shareholder Forum (which
supports access to information investors need) and a former investment
banker, said it was “sad” that “the current marketplace for financial
services doesn’t offer jobs that will pay all these talented and
highly skilled professionals to offer advice that doesn’t ring a
banker’s cash register.”
In other words, investors still face the
same challenge of figuring out how to get the best information on
which to base their investment decisions. This is why it pays to do
your own research (reading not only analysts’ reports but company
filings, news articles, and industry and academic reports), which your
broker or investment adviser can help you with, at least partially.
Form your own opinions about a company’s strategy to dominate its
industry over the long term.
Takeaways from the
FactSet data
Analysts are most “optimistic” about the
health-care and information technology sectors, according to Butters,
as both have the highest percentage of “buy” ratings: 57%. Here are
ratings percentages for all 11 sectors of the S&P 500.
Sector
|
Share ‘buy’
ratings
|
Share neutral
ratings
|
Share ‘sell’
ratings
|
Total return -
12 months through June 23
|
Health Care |
57% |
40% |
4% |
15% |
Information
Technology |
57% |
38% |
5% |
35% |
Energy |
55% |
39% |
6% |
-5% |
Materials |
52% |
43% |
4% |
14% |
Industrials |
48% |
47% |
5% |
21% |
Consumer
Discretionary |
47% |
47% |
6% |
15% |
Financials |
44% |
50% |
6% |
28% |
Real Estate |
42% |
53% |
5% |
4% |
Consumer Staples |
40% |
53% |
7% |
6% |
Utilities |
33% |
59% |
7% |
9% |
Telecommunications |
28% |
65% |
7% |
-9% |
S&P 500
|
49%
|
45%
|
6%
|
18%
|
Source: FactSet |
Note: Because of rounding, the
percentages for the ratings may not add up to 100%.
So positive sentiment is low for the
utilities and telecommunications sectors, but none of the sectors have
double-digit levels of negative sentiment.
Top-rated heath care
companies
Here are the 10 S&P 500 health-care
companies with the highest percentages of “buy” ratings:
Company
|
Ticker
|
Share ‘buy’
ratings
|
Share neutral
ratings
|
Share ‘sell’
ratings
|
Closing price
- June 23
|
Consensus
price target
|
Implied
12-month upside potential
|
UnitedHealth
Group Inc. |
UNH |
96% |
0% |
0% |
$185.25 |
$191.08 |
3% |
Envision
Healthcare Corp. |
EVHC |
95% |
5% |
0% |
$60.65 |
$73.82 |
22% |
Mallinckrodt PLC |
MNK |
94% |
6% |
0% |
$46.32 |
$71.37 |
54% |
Align Technology
Inc. |
ALGN |
93% |
7% |
0% |
$153.50 |
$160.92 |
5% |
Thermo Fisher
Scientific Inc. |
TMO |
89% |
11% |
0% |
$174.44 |
$187.88 |
8% |
Celgene Corp. |
CELG |
83% |
14% |
3% |
$134.31 |
$142.69 |
6% |
Alexion
Pharmaceuticals Inc. |
ALXN |
77% |
23% |
0% |
$126.07 |
$155.60 |
23% |
Cigna Corp. |
CI |
76% |
24% |
0% |
$169.61 |
$177.05 |
4% |
Incyte Corp. |
INCY |
76% |
24% |
0% |
$136.28 |
$146.71 |
8% |
Boston Scientific
Corp. |
BSX |
75% |
25% |
0% |
$28.10 |
$29.48 |
5% |
Source: FactSet |
You can click on the tickers for more
information, including news, estimates and company filings.
Top-rated IT
companies
Here are the 10 S&P 500 IT companies
with the highest percentages of “buy” ratings:
Company
|
Ticker
|
Share ‘buy’
ratings
|
Share neutral
ratings
|
Share ‘sell’
ratings
|
Closing price
- June 23
|
Consensus
price target
|
Implied
12-month upside potential
|
Broadcom Ltd. |
AVGO |
94% |
6% |
0% |
$245.26 |
$276.45 |
13% |
Facebook Inc.
Class A |
FB |
91% |
9% |
0% |
$155.07 |
$170.59 |
10% |
Salesforce.com
Inc. |
CRM |
87% |
11% |
2% |
$88.62 |
$102.40 |
16% |
Alphabet Inc.
Class A |
GOOGL |
86% |
12% |
2% |
$986.09 |
$1,058.98 |
7% |
Alphabet Inc
Class C |
GOOG |
86% |
12% |
2% |
$965.59 |
$1,057.95 |
10% |
Lam Research
Corp. |
LRCX |
86% |
9% |
5% |
$151.78 |
$163.30 |
8% |
Micron Technology
Inc. |
MU |
84% |
16% |
0% |
$31.73 |
$39.37 |
24% |
Visa Inc. Class A |
V |
84% |
16% |
0% |
$95.58 |
$103.14 |
8% |
Harris Corp. |
HRS |
80% |
20% |
0% |
$111.39 |
$122.11 |
10% |
Applied Materials
Inc. |
AMAT |
79% |
17% |
4% |
$44.09 |
$50.45 |
14% |
Western Digital
Corp. |
WDC |
79% |
21% |
0% |
$93.34 |
$114.25 |
22% |
Source: FactSet |
There are really 11 stocks listed here
because Alphabet Inc. (Google’s holding company) has two publicly
traded classes of common shares.
Companies with
highest levels of “sell” ratings
While there isn’t a single S&P 500
company with majority “sell” ratings, it can still be useful to know
which ones have the highest percentages of negative ratings:
Company
|
Ticker
|
Share ‘buy’
ratings
|
Share neutral
ratings
|
Share ‘sell’
ratings
|
Closing price
- June 23
|
Consensus
price target
|
Implied
12-month upside potential
|
Torchmark Corp. |
TMK |
0% |
55% |
45% |
$75.68 |
$73.13 |
-3% |
Consolidated
Edison Inc. |
ED |
0% |
59% |
41% |
$83.84 |
$76.50 |
-9% |
Assurant Inc. |
AIZ |
17% |
50% |
33% |
$101.25 |
$99.75 |
-1% |
Western Union Co. |
WU |
17% |
50% |
33% |
$19.17 |
$19.32 |
1% |
News Corp. Class
B |
NWS |
67% |
0% |
33% |
$14.05 |
$17.05 |
21% |
Transocean Ltd. |
RIG |
22% |
47% |
31% |
$8.09 |
$12.30 |
52% |
Paychex Inc. |
PAYX |
5% |
65% |
30% |
$59.24 |
$58.02 |
-2% |
Helmerich & Payne
Inc. |
HP |
30% |
40% |
30% |
$52.74 |
$62.44 |
18% |
Campbell Soup Co. |
CPB |
6% |
65% |
29% |
$53.58 |
$57.88 |
8% |
VeriSign Inc. |
VRSN |
0% |
71% |
29% |
$93.96 |
$89.80 |
-4% |
Source: FactSet |
It’s fascinating to see that even on a
list of stocks with the highest percentages of “sell” ratings, there
is one company — News Corp.
NWS the parent company of Dow
Jones and MarketWatch — that still has a majority of analysts
recommending investors buy the shares.
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