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All Contents © 2020The Kiplinger Washington Editors
By Dan Burrows, Contributing Writer
| March 6, 2020
The coronavirus outbreak is making a number of stocks look like bad bets for new money at current levels. Of even more concern are those big, brand-name stocks Wall Street wasn't completely sold on even before COVID-19 hit the scene.
To get a sense of some of the worst well-known stocks to buy now, we scoured the broader market for stocks with large market values and a collective shrug on the part of analysts.
S&P Global Market Intelligence 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. Scores between 3.5 and 2.5 translate into a Hold recommendation. Any score higher than 3.5 means that analysts, on average, believe the stock should be sold. The closer a score gets to 5.0, the higher their collective conviction.
We limited ourselves to average scores of 2.9 and above. Additionally, since Sell calls are so rare, we searched for names with at least two of them. Lastly, we only looked at stocks with at least 15 "darn-with-faint-praise" Hold recommendations.
The result? Nine of the worst stocks to buy right now. Among these brand-name stocks are two Dow components and two of Warren Buffett's favorite stock picks. If you currently hold these companies, especially for the long term, you're OK – these are simply places where investors should avoid putting new money at the moment. However, every one of these stocks likely will be worth another look once the current crisis and company-specific issues have passed.
Data is as of March 5. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.
Market value: $243.6 billion
Dividend yield: 2.3%
Analysts' average recommendation: 2.93
Intel (INTC, $56.96) has made its name as Wall Street's premier chipmaker. And it also has grown a following thanks to its status as one of the Dow's best dividend growth stocks.
But among the analyst community, INTC was a solid Hold even before the correction. The global slowdown caused by coronavirus isn't doing the chipmaker any favors.
True, six analysts say the Dow component is a Strong Buy and six call it a Buy. But five analysts say Sell and five say Strong Sell. Meanwhile, there's a huge cohort of pros on the sidelines, calling it a Hold.
Northland Capital Markets' Gus Richards, who rates INTC at Market Perform (equivalent of Hold), says shares are at a fork in the road after a robust period of strong sales for data center server processors and personal-computer processors.
"We see a number of potential positive and negative catalysts for Intel's shares, but do not know which will come first," writes Richards, who recently reiterated his rating after Intel cut its first-half 2020 estimates due to the COVID-19 outbreak.
Intel should be fine to hold on to in the long run, but its current status in analyst limbo puts it among the worst stocks to buy right now.
Market value: $19.3 billion
Dividend yield: 6.1%
Analysts' average recommendation: 2.96
Ventas (VTR, $51.79) is another name that engenders little enthusiasm among analysts. The real estate investment trust (REIT) that specializes in senior living facilities, medical office buildings and related real estate has lost more than 17% during the past 52 weeks, and the outlook isn't exactly looking up.
A whopping majority of the 23 analysts who cover VTR and are tracked by S&P Global Market Intelligence are stuck in the middle. Eighteen pros call shares a Hold. Two say it's a Strong Buy and another says it's a Buy, while two more call Ventas a Strong Sell at current prices.
The main issue that puts Ventas among the worst stocks to buy right now? Weakness in the senior housing segment.
"Ventas has a large, diversified portfolio of healthcare assets, with advantages in terms of costs of capital, scale and reach," writes Stifel, which rates share at Hold. "However, we don't expect growth in 2020 and there are continued portfolio risks, particularly in its managed seniors housing portfolio."
Again, Ventas is a great REIT to buy and hold for the long run, but now might not be the best time to jump in.
Market value: $9.9 billion
Dividend yield: 1.2%
J.B. Hunt Transport Services (JBHT, $93.09) is the king of intermodal shipping (the process of transporting goods across two different modes – in this case, taking containers in rail and the transferring them to trucks).
The company was already challenged by softer demand and high inventory levels, notes Argus, which calls the stock a Hold.
Analysts add that railroad industry trends and e-commerce are working against the name. Throw in a logistics slowdown sparked by coronavirus, and most Wall Street pros are sitting on the fence when it comes to JBHT.
Shares are down almost 11% over the past year. Indeed, the Dow Jones Transportation Average, a sister index of the industrial average, recently entered its first bear market (a decline of 20% or more from a peak) in three years. Two analysts rate the stock at Strong Buy and one says Buy. Two say Strong Sell. As for everyone else? Nineteen analysts slap a Hold call on J.B. Hunt's stock.
Stay away for now, but give JBHT a fresh look regularly.
Market value: $32.9 billion
Dividend yield: 1.5%
Analysts' average recommendation: 3.00
Cognizant Technology Solutions (CTSH, $59.93), an infotechnology consulting and outsourcing firm, is in the midst of a turnaround. However, as Warren Buffett has said, the problem with turnarounds is that most of them don't turn.
Deutsche Bank says coronavirus doesn't appear to be having any current impact on IT spending, and CTSH has very limited exposure to the travel industry. "The biggest concern would be if the coronavirus penetrated India, which would make supply chain staffing complicated and upset the model," writes Deutsche Bank, which rates the stock at Hold.
And in what might be seen as a case of darning with faint praise, Deutsche Bank notes that the company is seeing a "pick-up in employee morale."
Morgan Stanley analyst James Faucette is even less impressed, rating the stock Underweight (equivalent of Sell) with a $59 price target based on challenges to the company's execution. He thinks the current turnaround plan limits M&A and other strategic options.
Of the 34 analysts covering CTSH, five say Strong Buy, four say Buy, 16 call it a Hold, four say Sell and five rate it at Strong Sell.
Market value: $21.3 billion
Dividend yield: 2.2%
Analysts' average recommendation: 3.04
Rockwell Automation (ROK, $183.40), an industrial automation and information technology company, is particularly sensitive to a global slowdown in the manufacturing sector.
At the moment, that makes ROK one of the worst stocks to buy.
JPMorgan analyst Stephen Tusa downgraded Rockwell to Underweight from Neutral (equivalent of Hold) at the end of 2019, saying that Wall Street had "baked in too much optimism" into the company's estimates. JPMorgan added that ROK is the stock most at risk if manufacturing contracts.
Of the 26 analysts covering the stock tracked by S&P Global Market Intelligence, two say Strong Buy, one calls it a Buy, 19 say Hold, two say Sell and two rate it at Strong Sell.
That's partly due to an unappealing valuation. ROK shares trade at almost 22 times 2020 earnings. That's not too expensive if you're paying for growth – but with Rockwell, you're not. The firm's earnings per share are forecast to improve by less than 3% this year and at an average annual rate of just 6.2% over the next five years.
Market value: $6.6 billion
Dividend yield: 5.8%
Analysts' average recommendation: 3.08
Comerica’s (CMA, $46.72) fourth-quarter net income fell 11% year-over-year, hurt by shrinking interest rates. Net interest margin – the difference between what a bank pays for deposits for loans – was already under pressure. The most recent half-point Federal Reserve rate cut ratcheted up the pressure, and worst of all, Wall Street still is betting on even more rate cuts.
"The rate environment has taken a severe turn for the worse and although banks have greatly reduced asset sensitivity, no bank's margin is immune," writes Wedbush. The question is not if the Fed will cut rates, Wedbush adds, but how many more times it will do so.
”Given margin pressure from lower rates, growing the loan portfolio is essential as a partial offset,” Wedbush’s analysts say, also pointing out that the bank’s asset sensitivity is reduced but that Comerica is “still behind where they need to be.”
Most analysts covering the stock are on the sidelines, with 18 Holds and two Sells.
Market value: $32.6 billion
Dividend yield: 6.0%
Analysts' average recommendation: 3.10
When Brazilian investment firm 3G Capital and Warren Buffett's Berkshire Hathaway (BRK.B) engineered Heinz's acquisition of Kraft Foods Group five years ago, no one expected the merged company to be such a dud.
Shares in Kraft Heinz (KHC, $26.65) are off 63% since 2015, a period in which the S&P 500 gained 46%. Full-year revenue declined from 2017 to 2019 and is expected to decline this year as well. Going forward, analysts see top-line growth being sluggish at best.
Making matters worse, KHC carries a heavy debt load. At the end of 2019 the company had $28 billion in long-term debt. Total cash and short-term investments came to only $2.3 billion. And in February Fitch and S&P downgraded the company's senior unsecured debt rating. Kraft's average rating fell into the high yield (junk bond) category, down from investment-grade.
When a company's credit rating is downgraded to junk status from investment grade, it's called a "fallen angel." Notes Deutsche Bank: "Kraft Heinz immediately becomes the third largest fallen angel since 1996 and the second largest high-yield issuer once it enters the index."
All this makes KHC one of the worst stocks to buy right now, which is saying something, given that it's in the currently treasured consumer staples sector. Two analysts call it a Strong Buy, 15 say Hold, two say Sell and two rate KHC at Strong Sell.
Berkshire Hathaway, in a rare misstep, still owns 27% of KHC's shares outstanding.
Market value: $159.5 billion
Dividend yield: 5.2%
Analysts' average recommendation: 3.18
Is it possible that after long last Warren Buffett is tiring of Wells Fargo (WFC, $38.90)? The phony accounts scandal that has plagued the bank for years appears to be finally at an end – and it was a whopper of an end. WFC reached a $3 billion settlement with the Justice Department and Securities and Exchange Commission after admitting that, for 14 years, employees opened checking, savings and other accounts that customers didn't want or even know about.
"This settlement is a good thing, but there is still much work to be done," says Piper Sandler, which rates shares at Neutral. "There are about a dozen public enforcement actions that still require significant resource commitment."
Although the worst of the phony accounts scandal is over, WFC has another nightmare on its hands: rate cuts and shrinking net interest margins.
Berkshire Hathaway remains WFC's largest shareholder, but Warren Buffett did sell nearly 15% of the firm's position during the final quarter of 2019.
As for the analyst community? One pro calls WFC a Strong Buy while two say it's a Buy. Six analysts are split among Sell and Strong Sell. A huge cluster of analysts (19) are on the sidelines at Hold.
Market value: $43.2 billion
Dividend yield: 3.8%
Analysts' average recommendation: 3.21
Walgreens Boots Alliance (WBA, $48.78) was the worst stock in the Dow Jones Industrial Average in 2019, and it's not looking too good either so far in 2020. While the stock has been bouncing back of late due to coronavirus-driven needs for its goods and services, shares still are down 15% year-to-date versus an 8% drop for the S&P 500. The pharmacy chain missing the Street's first-quarter estimates did it no favors.
No matter what WBA tries, it can't seem to get off the schneid. "With management continuing to investigate what feels like every route possible to spur growth, we prefer to remain on the sidelines," writes Raymond James, which rates the stock at Market Perform (equivalent of Hold).
"While WBA shares may seem cheap, we maintain a Hold due to a tough expected macro environment," CFRA analyst Arun Sundaram writes. "The drug retail business model is changing, and while change brings opportunities, we're unsure whether WBA is appropriately positioning itself for future success."
Meanwhile, BofA and UBS analysts both offered up Sell-equivalent ratings amid worries about reimbursement costs.
The analyst community broadly sees Walgreens as one of the worst stocks to buy right now. One brave analyst calls WBA a Buy. The other recommendations break down as follows: 19 Holds, two Sells, two Strong Sells.