What Not to Buy: 5 Stocks to Avoid
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Introduction
These five stocks to avoid, according to Wall Street experts, should be towards the top of your sell list as weak positions might become much weaker in a challenging market like this.
Much if the stock market has had a terrible year so far, there are still plenty of stocks to avoid or sell in expectation of even worse losses.
True, one of the worst beginnings to a year in market history has undoubtedly resulted in a plethora of deals. However, not every company is worth purchasing on the downturn.
Although it is a good first concept to be greedy when others are scared, keep in mind that certain equities fall for excellent reasons. These stocks to avoid or sell have a lot of opportunity to fall considerably lower.
Given the rarity of negative equities ratings on Wall Street, it seemed like a good moment to check which stocks to avoid or sell today as collectively recommended by experts.
For that purpose, we screened the Russell 1000 index using data from YCharts and S&P Global Market Intelligence to find the companies with the highest-conviction consensus Sell recommendations from industry experts.
S&P evaluates analysts’ stock calls and rates them on a five-point scale, with 1.0 indicating a Strong Buy and 5.0 indicating a Strong Sell. Any score of 3.5 or lower indicates that analysts on average assess the stock as a Sell. The stronger the consensus Sell recommendation becomes as the score approaches 5.0.
We were left with a small list of names after running the screen. (As previously said, Sell calls are uncommon.) They come from a variety of industries, including retail, insurance, and utilities, but they all have one thing in common: the Street expects them to significantly underperform the overall market over the next 12 months or so.
5 Stocks to Avoid or Sell Now
1. Hawaiian Electric Industries
- Market value: $4.6 billion
- Analysts’ consensus recommendation: 3.6 (Sell)
So far in 2022, Hawaiian Electric Industries (HE, $41.99) stock has performed admirably. The year-to-date performance is practically flat, compared to a 16 percent decrease in the S&P 500.
The Street, on the other hand, believes that outperformance is about to come to a halt.
The five analysts that cover this utilities stock all have a negative outlook on it. According to S&P Global Market Intelligence, the average price target of $41.60 indicates that the company is somewhat overpriced, and ratings skew to the sell side, with three Holds, one Sell, and one Strong Sell.
Hawaiian Electric is one of the equities that professional investors are looking to sell. UBS Global Research analyst Daniel Ford assesses the company as a Sell, with a price objective of $36 suggesting a 15% drop in the next 12 months.
This is partly owing to the company’s one-of-a-kind comprehensive exposure to the state. Hawaiian Electric Industries is made up of three operating subsidiaries: Hawaiian Electric, an electric utility that serves 95 percent of the state of Hawaii; Pacific Current, an independent subsidiary dedicated to Hawaii’s sustainability goals; and American Savings Bank, one of Hawaii’s largest financial institutions.
As a result, HE was a COVID-19 recovery play, but much (if not all) of the upside has already been baked in. That notion appears to be backed up by the value.
Indeed, the stock is trading at slightly under 20 times the Street’s EPS forecast for 2022. Analysts predict that over the next three to five years, the firm will post moderate annual EPS growth of less than 8%.
2. Southern Copper
- Market value: $45.1 billion
- Analysts’ consensus recommendation: 3.75 (Sell)
Southern Copper (SCCO, $58.38) has lost more than 5% of its value this year. Despite outperforming the overall market by a large margin, Wall Street believes its days of outperformance are numbered.
The consensus advice for the copper miner, smelter, and refiner is Sell, with a high confidence. Eight of the 16 analysts that follow SCCO for S&P Global Market Intelligence rank the stock as Hold, four as Sell, and four as a Strong Sell.
The company’s bearishness originates mostly from political and social unrest in Peru, where it has a significant presence. After community demonstrations caused them to suspend construction at its Cuajone mine, SCCO saw copper output drop 10% in the most recent quarter.
Although the mine is again operating at full capacity, tensions remain high. Indeed, early this year, BofA Securities joined the professionals in selecting Southern Copper as one of their stocks to avoid or sell, downgrading shares to Underperform due to the possibility of additional upheaval in Peru.
SCCO is also dealing with reduced ore grades and recoveries at other sites, according to CFRA Research analyst Matthew Miller, who has a Hold rating on the stock. According to the analyst, these factors caused the business to lower its full-year output target by 3%.
The Street is particularly concerned about Southern Copper’s reliance on the Cuajone mine, which represents for 40% of the company’s Peruvian output.
3. Xerox
- Market value: $2.7 billion
- Analysts’ consensus recommendation: 4.00 (Sell)
The stock of Xerox (XRX, $17.24) has lost over a quarter of its value this year, yet no analysts are advising customers to buy the drop on this long-term market loser.
For more than a year, shares in the digital printing firm have had a consensus rating of Sell, and it’s easy to understand why. In five of the last seven years, XRX has underperformed the wider market by massive amounts.
There appears to be little chance of that record being broken very soon.
Prior to the pandemic, Xerox had been under pressure from the emergence of the paperless office and the resulting reduction in income from imaging equipment. During the pandemic, the number of people working from home increased, hastening the trend.
At the same time, supply-chain interruptions are hampering the company’s efforts to develop higher-margin items, and inflation is taking a severe toll on input prices.
Experts expect these challenges to drag on sales and profitability well beyond 2022, and they believe it will take time for the company’s transformation initiatives to achieve momentum.
The majority of the seven analysts who have an opinion on XRX believe it is a stock to sell. Three analysts rate Xerox as a Hold, one as a Sell, and three as a Strong Sell.
4. Mercury General
- Market value: $2.8 billion
- Analysts’ consensus recommendation: 4.00 (Sell)
Mercury General (MCY, $49.80) has only one analyst covering the stock, which could give potential investors worry.
The fact that MCY’s solitary analyst has issued a rare Sell recommendation further adds to its unattractiveness.
MCY is rated Underperform (the equivalent of Sell) by Raymond James analyst C. Gregory Peters, who cites a variety of issues. For one thing, supply-chain issues and inflationary pressures inherent to the auto and property industries continue to impact insurance underwriters.
MCY is battling with the California Department of Insurance’s pricing rules, in addition to the fact that consumers don’t have to acquire insurance for automobiles they can’t find or afford.
The California Department of Insurance is well-known for being anti-insurance and politically motivated, which we believe will make rate approvals even more difficult in this election year. In the worst-case scenario, the California Department of Insurance might postpone rate hikes for up to two years.
Year to date, MCY stock has outperformed the overall market, but it is still down approximately 6%. Raymond James’ Peters has no price objective for the stock, claiming that it isn’t relevant at this time.
The Underperform grade is mostly a reflection of California’s longer-term structural issues.
5. GameStop
- Market value: $7.5 billion
- Analysts’ consensus recommendation: 4.33 (Sell)
At least according to Wall Street experts, the godfather of meme stocks is in for a big drop. And this comes after a year-to-date drop of more than a third.
GameStop (GME, $98.79) shares are expected to fall 73 percent in the next 12 months, according to analysts’ average target price of $26.50. Sell is their unanimous suggestion.
To be honest, this is a very small sample size of suggestions. GME is now only covered by three analysts. According to S&P Global Market Intelligence, one analyst ranks the company as a Hold and two ratings it as a Strong Sell.
Before shares in the brick-and-mortar video game store became a plaything for social media day traders, GME was covered by as many as ten analysts. Fundamental analysis became obsolete when the stock’s price movement got disconnected from reality, as it did when it surged 1,740 percent in a matter of weeks in early 2021.
This schism continues to be a serious issue for analysts who refuse to relinquish coverage of the name.
Due to continuous support from certain individual investors, the share price continues to trade at levels that are utterly detached from the fundamentals of the firm. As a result, we continue to feel that an Underperform [Sell] rating is merited.
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Adam is an internationally recognised author on financial matters, with over 760.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.
