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All Contents © 2019The Kiplinger Washington Editors
By Harriet Lefton, Contributing Writer
| August 14, 2018
This bull market is getting awfully long in the tooth. Stocks haven’t recorded a 20% drop since March 9, 2009 – the beginning of the recovery from the Great Recession. At 3,444 days at last count, this bull market is on pace to set the all-time record on Aug. 22, surpassing the 3,452-day rally between Oct. 11, 1990.
Nothing lasts forever, of course, and that will be true of the current bull market at some point. “Since we are back close to the highs for the S&P 500, risks of a pullback have certainly risen,” Wall Street veteran Bill Stone told CNBC on Aug. 9.
But even with a bear market nowhere in sight, some individual stocks may be in trouble.
TipRanks’ Stock Screener reveals stocks with a bearish analyst consensus rating – so while we often use the screener to identify stocks to buy, it’s also useful in targeting stocks to avoid or even sell.
Today, we’ll look at seven stocks that have consensus hold or sell ratings from Wall Street right now, indicating that they could be trouble in the months ahead. We’ll also share analysts’ price targets on these stocks to avoid, and the pros’ reasons as to why.
Data is as of Aug. 13, 2018. Stocks are listed in alphabetical order.
Market value: $2.1 billion
TipRanks consensus price target: $13.80 (23% downside potential)
TipRanks consensus rating: Moderate sell (See Details)
3D Systems (DDD, $17.92) engineers, manufactures and sells 3D printers. The stock has been on a volatile run recently, crashing 12% in July but soaring in August on better-than-expected second-quarter results.
However, analysts remain unconvinced. Most notably, Piper Jaffray’s Troy Jensen and B. Riley FBR’s Christopher Horn reiterated their sell ratings on Aug. 8 – a day after DDD’s report.
For Jensen (view Jensen’s profile & recommendations), this sell rating came with a $14 price target, indicating 22% downside from current levels. Horn is even more bearish, with his $9 price target implying that the stock will be halved.
Jensen – a top-rated analyst according to TipRanks’ measures – downgraded DDD at the end of July. He wrote that “competition for DDD’s main product lines is intensifying and anticipate the company will struggle to deliver organic system growth with HP, GE, Formlabs, Carbon and others attacking their biggest revenue contributors.”
This means 3D Systems will need to ramp up its spending on direct sales, customer support and consulting. The company also must introduce new products to stay ahead of the pack. Jensen sees “continued struggles” ahead.
DDD has received no buy ratings from the Street over the past three months, versus three holds and two sells.
Courtesy Mike Mozart via Flickr
Market value: $2.6 billion
TipRanks consensus price target: $18 (Fractional downside potential)
American home furnishings chain Bed Bath & Beyond (BBBY, $18.12) is trading at lows last seen in 2000. Prices have crashed by nearly 75% in just the past five years, and the stock is off 17% year-to-date.
But now is not the time to buy on the dip.
Top Wells Fargo analyst Zachary Fadem (view Fadem’s profile & recommendations) has a sell rating on the stock with a $16 price target. This suggests further downside potential of almost 12%.
“While improving transparency and refreshed management team are incremental positives, we remain bearish on 2018 with aspirational comp guidance, low margin and profit visibility and considerable reinvestment ahead” Fadem writes. Indeed, he is now modelling for 30% EPS declines.
Most worrying is that Bed Bath & Beyond seems unlikely to close the gap with rival Amazon anytime soon. Loop Capital’s Anthony Chukumba notes that a “fairly significant” price discrepancy remains between Amazon.com (AMZN) and BBBY. As a result, he sees weak fundamentals continuing “for the foreseeable future.”
Market value: $12.6 billion
TipRanks consensus price target: $34.29 (17% downside potential)
Canned-soup giant Campbell Soup (CPB, $41.51) recently has been downgraded by JPMorgan’s Kenneth Goldman (view Goldman’s profile & recommendations), who slashed his rating from hold to sell on Aug. 10. That came with a very bearish price target of $36 (13% downside from the current share price).
Campbell Soup currently is at a very critical juncture. Frustrated shareholders, including Third Point’s Dan Loeb, are pushing for management to sell. Loeb currently holds a 5.65% stake in the struggling stock. He believes Campbell has suffered from “years of abysmal oversight,” “dismal operating performance” and a “lack of leadership.”
“We think the appeal of buying all of Campbell Soup is limited; we are not sure which potential suitors would take on the risk, including Kraft Heinz,” Goldman wrote. As a result, he finds it unlikely that the company will be sold at any significant premium to the current share price.
He’s not alone. In the past three months, six analysts have published sell ratings on the stock, and another three have issued holds. Only one analyst has felt CPB is worth buying.
Market value: $37.47 billion
TipRanks consensus price target: $213.50 (Fractional upside potential)
Self-storage stock Public Storage (PSA, $215.20) could give investors a nasty shock in the coming months. Evercore ISI analyst Steve Sakwa (view Sakwa’s profile & recommendations) downgraded PSA to a sell rating back in July. His reason: While shares have outperformed year-to-date, they now appear “overextended.”
BMO Capital’s Jeremy Metz also is advising investors to sell shares. His $194 price target indicates that PSA could fall by almost 10%. Metz thinks disappointing Q2 results indicate that Public Storage is under pressure. PSA has repeatedly talked of softer demand and lower take rates, which he believes are now is manifesting as supply pressures rise.
“While PSA remains the dominant player in Storage with an industry-leading balance sheet, with peers holding up better, we see some of the valuation premium dissipating near-term until growth stabilizes/recovers,” Metz wrote on Aug. 1.
PSA has received just one analyst buy rating over the past three months, versus three holds and three sells.
Courtesy FuFu Wolf via Flickr
Market value: $11.2 billion
TipRanks consensus price target: $133.56 (2% downside potential)
TipRanks consensus rating: Hold (See Details)
Welcome to the “brand teens hate.”
Merrill Lynch’s Heather Balsky (view Balsky’s profile & recommendations) downgraded Ralph Lauren (RL, $136.61) back at the end of 2017. She recently reiterated her sell rating with a $117 price target, anticipating a 14% fall in the stock price.
“Fashion-led turnarounds in apparel are tough to execute,” Balsky commented. “We expect the outlet business to continue to weigh on full-price sell-through until RL launches a more differentiated product by channel, and even then, there is a risk that the product will not be different enough.”
She explains that the brand became stale relative to peers, especially due to heavy outlet sales at significantly marked-down prices. However: “We think management recognizes this issue and key initiatives are focusing on modernizing the brand and reengaging consumers.”
Nonetheless, an uphill battle lies ahead, and the stock still is firmly in “show-me” mode. Only two analysts have expressed bullish sentiment about RL over the past three months – against four hold calls and four sells.
Market value: $16.1 billion
TipRanks consensus price target: $12.23 (3% downside potential)
Snap out of it, recommends Pivotal Research’s Brian Wieser (view Wieser’s profile & recommendations). This five-star analyst recently reiterated his sell rating on Snap Inc. (SNAP, $12.57) with a $9 price target. That’s downright dour compared to an already bearish analyst consensus, suggesting prices will plunge by 26%.
Even “decent” second-quarter financial results failed to lift the analyst’s spirits. On Aug. 8, Snap reported 44% revenue growth that beat both consensus expectations and Pivotal Research’s own estimates.
However, Wieser noted that the domestic growth was underwhelming: “User-apportioned growth of only +20% for North America represented a significant slowdown from 1Q18’s +32% growth rate.”
Multiple company-specific risks make SNAP an unappealing investing prospect, too. As Wieser writes, “Investors in Snap will be exposed to an upstart facing aggressive competition from much larger companies.” Meanwhile, the company is operated by a “senior management team lacking experience transforming a successful new product into a successful company.”
SNAP shares have received three buy ratings over the past month, but five sells and 10 holds – a decidedly bearish consensus.
Market value: $60.0 billion
TipRanks consensus price target: $323.90 (9% downside potential)
Controversial auto stock Tesla (TSLA, $356.41) is far from an appealing investing prospect right now. The stock has racked up eight sell ratings and another seven holds in the past three months, versus 10 buys.
In the bear camp stands five-star Needham analyst Rajvindra Gill (view Gill’s profile & recommendations). He reiterated his sell rating on TSLA on Aug. 8 following CEO Elon Musk’s tweet that he is “considering” taking the company private. Musk posited that there would be an option for existing shareholders to be bought out at $420 per share or stay on as private investors.
According to Gill, such a move is “theoretically possible,” but Tesla would realistically need to raise anywhere from $24 billion to $54 billion to finance the deal. Such funding is unlikely to come from the debt markets, meaning Tesla would need to turn to strategic investors such as Alibaba (BABA) or Tencent (TCEHY).
And in the meantime, many issues continue to plague the stock.
“Our concerns around the fundamentals remain consistent: sustainability of Model 3 gross margins entering 2019, uncertainty of the true level of demand for the Model 3 entering next year once the $7,500 credit declines, the status of the 420k net reservations, the unsustainable capital structure, and high valuation, in our opinion,” Gill writes.
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