It's been a horrific year so far for equities, and yet the market remains littered with stocks to sell in anticipation of even deeper losses.
True, one of the worst starts to a year in market history has surely created a smorgasbord of bargains. But it hardly follows that every stock is worth buying on the dip.
Although being greedy when others are fearful is a generally fine first principle, remember that some stocks go down for good reasons. Such stocks to sell have plenty of room to decline even further.
Given that negative ratings on equities are exceedingly rare on Wall Street, it seemed like a good time to see which names analysts collectively single out as stocks to sell now. To that end, we used data from YCharts and S&P Global Market Intelligence to screen the Russell 1000 index for the stocks with the highest-conviction consensus Sell recommendations by industry analysts.
Here's how the ratings system works: S&P surveys analysts' stock calls and scores them on a five-point scale, where 1.0 equals a Strong Buy and 5.0 is a Strong Sell. Any score equal to or below 3.5 means that analysts, on average, rate the stock at Sell. The closer a score gets to 5.0, the stronger the consensus Sell recommendation.
After running the screen we were left with a very short list of names. (As we said above, Sell calls are rare.) And although they come from sectors as diverse as retail, insurance and utilities, they all have one thing in common: The Street expects them to underperform the broader market handily over the next 12 months or so.
Read on for more information about Wall Street's top five stocks to sell now.
Share prices, price targets, analysts' recommendations and other market data are as of March 9, courtesy of S&P Global Market Intelligence and YCharts, unless otherwise noted. Stocks are listed by conviction of analysts' Sell calls, from weakest to strongest.
Hawaiian Electric Industries
- Market value: $4.6 billion
- Analysts' consensus recommendation: 3.6 (Sell)
Hawaiian Electric Industries (HE (opens in new tab), $41.99) stock is holding up pretty well so far in 2022. It's essentially flat for the year-to-date vs. a drop of 16% for the S&P 500.
The Street, however, says that outperformance is set to come to an end in a big way.
The five analysts covering this utility stock collectively view it a hair on the negative side. The average price target of $41.60 implies that the stock is a little overvalued, and ratings lean to the sell side, at three Holds, one Sell and one Strong Sell, per S&P Global Market Intelligence.
The pros who have Hawaiian Electric among their stocks to sell believe the company is set for a fall. UBS Global Research analyst Daniel Ford rates the stock at Sell, and his price target of $36 gives HE stock implied downside of about 15% in the next 12 months or so.
That's due in part to the company's unique total exposure to its state. Hawaiian Electric Industries comprises three operating subsidiaries: Hawaiian Electric, an electric utility serving 95% of Hawaii; American Savings Bank, one of Hawaii's largest financial institutions; and Pacific Current, an independent subsidiary that aims to advance Hawaii's sustainability goals.
As such, HE was sort of a COVID-19 recovery play, but now much (if not all) of the upside has been baked in. The valuation would certainly appear to support that view.
Indeed, shares trade at just under 20 times the Street's 2022 earnings per share (EPS) estimate. Meanwhile, analysts forecast the company to generate modest average annual EPS growth of less than 8% over the next three to five years.
- Market value: $45.1 billion
- Analysts' consensus recommendation: 3.75 (Sell)
Southern Copper (SCCO (opens in new tab), $58.38) stock is off more than 5% for the year-to-date. Although that's beating the broader market by a wide margin, the Street says its days of outperformance are coming to an end
Shares in the copper miner, smelter and refiner get a consensus recommendation of Sell, with fairly strong conviction. Of the 16 analysts covering SCCO tracked by S&P Global Market Intelligence, eight rate it at Hold, four say Sell and four call it a Strong Sell.
The bearishness stems primarily from political and social upheaval in Peru, where the company maintains a key presence. SCCO saw copper production tumble 10% in the most recent quarter after community protests forced it to halt work at its Cuajone mine.
The mine has since returned to full capacity, but tensions remain high. Indeed, BofA Securities joined the pros listing Southern Copper among their stocks to sell earlier this year, downgrading shares to Underperform because of the potential for further unrest in Peru.
At the same time, SCCO is also struggling with lower ore grades and recoveries at other mines, notes CFRA Research analyst Matthew Miller, who rates shares at Hold. Those headwinds forced the company to cut its full-year production guidance by 3%, the analyst adds.
The Street also worries about Southern Copper's heavy dependence on the Cuajone mine, as it accounts for 40% of the company's production in Peru.
- Market value: $2.7 billion
- Analysts' consensus recommendation: 4.00 (Sell)
Xerox (XRX (opens in new tab), $17.24) stock has lost nearly a quarter of its value so far this year, but you won't find any analysts imploring clients to buy the dip on this long-time market laggard.
Indeed, shares in the digital printing company have carried a consensus recommendation of Sell for more than a year, and it's not hard to see why. XRX underperformed the broader market by pretty much epic margins in five of the past seven years.
Apparently there's little reason to see it snapping that streak anytime soon.
"Prior to the pandemic, Xerox had faced pressure from the rise of the paperless workplace and the corresponding decline in imaging equipment revenue," writes Argus Research analyst Kristina Ruggeri (Hold). "The increase in work-from-home practices during the pandemic further accelerated this trend."
At the same time, supply-chain disruptions are impeding the company's efforts to manufacture higher-margin products, and inflation is taking a heavy toll on input costs.
"We expect these headwinds to weigh on sales and earnings well into 2022 and believe that it will take time for the company's transformation efforts to gain traction," Ruggeri says.
The majority of the seven analysts with opinions on XRX have it among their stocks to sell. Specifically, three call Xerox a Hold, one says Sell and three have it at Strong Sell.
- Market value: $2.8 billion
- Analysts' consensus recommendation: 4.00 (Sell)
Only one analyst covers shares in property and casualty insurer Mercury General (MCY (opens in new tab), $49.80), which should give would-be investors pause in and of itself.
That the sole analyst tracking MCY slaps a rare Sell call on it makes this name only that much more unattractive.
Raymond James analyst C. Gregory Peters rates MCY at Underperform (the equivalent of Sell), citing a number of factors. For one thing, the insurance underwriter continues to be hurt by the supply-chain problems and inflationary pressures endemic to the auto and property markets.
In addition to the fact that consumers don't need to buy insurance for cars they can't find or afford, MCY is struggling with the California Department of Insurance's rates policies.
"The CA Department of Insurance is notoriously anti-insurance industry and political, which we believe could make rate approvals even more problematic considering it is an election year," Peters writes. "In a worst-case scenario, the CA DOI could delay rate increases by up to two years."
MCY stock is beating the broader market year-to-date, but it's still off about 6%. Raymond James' Peters doesn't have a price target for the stock, saying it's not material at this point.
"Our Underperform rating is primarily a reflection of the longer-term structural challenges associated with California," he says.
- Market value: $7.5 billion
- Analysts' consensus recommendation: 4.33 (Sell)
The godfather of meme stocks is set for a massive fall, at least as far as Wall Street pros are concerned. And that's after tumbling by more than a third for the year-to-date already.
Analysts' average target price of $26.50 gives shares in GameStop (GME (opens in new tab), $98.79) implied downside of 73% in the next 12 months or so. Their consensus recommendation, needless to say, stands at Sell.
To be fair, we're talking about a miniscule sample size of recommendations here. Only three analysts bother issuing opinions on GME anymore. Of those who remain, one rates the stock at Hold and two call it a Strong Sell, per S&P Global Market Intelligence.
Once upon a time – before shares in the brick-and-mortar video game retailer became a plaything for social media day traders – as many as 10 analysts covered GME. But once the stock's price action became divorced from reality – it gained 1,740% over the course of a few weeks at one point in early 2021 – fundamental research became pointless.
That schism remains a real problem for analysts who refuse to drop coverage of the name.
"The share price continues to trade at levels that are completely disconnected from the fundamentals of the business due to ongoing support from certain retail investors," writes Wedbush analyst Michael Pachter. "As a result, we continue to believe that an Underperform rating [the equivalent of Sell] is warranted."
Dan Burrows is Kiplinger's senior investing writer, having joined the august publication full time in 2016.
A long-time financial journalist, Dan is a veteran of SmartMoney, MarketWatch, CBS MoneyWatch, InvestorPlace and DailyFinance. He has written for The Wall Street Journal, Bloomberg, Consumer Reports, Senior Executive and Boston magazine, and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor's Business Daily, among other publications. As a senior writer at AOL's DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities.
Once upon a time – before his days as a financial reporter and assistant financial editor at legendary fashion trade paper Women's Wear Daily – Dan worked for Spy magazine, scribbled away at Time Inc. and contributed to Maxim magazine back when lad mags were a thing. He's also written for Esquire magazine's Dubious Achievements Awards.
In his current role at Kiplinger, Dan writes about equities, fixed income, currencies, commodities, funds, macroeconomics and more.
Dan holds a bachelor's degree from Oberlin College and a master's degree from Columbia University.
Disclosure: Dan does not trade stocks or other securities. Rather, he dollar-cost averages into cheap funds and index funds and holds them forever in tax-advantaged accounts.
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