John Dorfman
If anyone could predict the future, you’d think it would be Wall Street analysts. They have degrees from Harvard, Yale and the like. They get generous salary. They have advanced computer programs and intelligent assistants that work longer hours.
However, in my 25-year study comparing the stocks analysts like most at the beginning of each year with their most hated stocks, the balance is about the same.
Analysts’ favorites rose an average of 6.7%. The stocks they hate posted an average of 6.5%. Meanwhile, the Standard & Poor’s 500 Total Return Index posted an average gain of 12.1%.
My study covers the years 1998 to 2023, with the exception of 2008, when I temporarily retired as a columnist. Each year, I look at the four stocks that are unanimously praised by analysts and the four stocks with the highest percentage of sell recommendations.
Only US-based stocks covered by four or more analysts are included in the study. The minimum market value is 500 million dollars. I used Zacks Investment Research as a source for analyst ratings.
Favorite stocks beat despised ones 13 out of 25 times. In 1998, the scorned stocks had 11 wins and one tie.
Compared to the S&P 500, analysts’ favorite stocks were up just eightfold. Unloved stocks rose 10 times.
2023 Results
Last year, the analyst staff did a little better than usual. In 2023, your favorite picks returned an average of 25.6%, outperforming the S&P by 26.3%. Over the past year, the modest stock has gained 9.2%.
Karuna Therapeutics (KRTX), which began 2023 with 19 analysts’ buy recommendations and none against, advanced 61%. It is working on drugs for schizophrenia and dementia-related psychosis. Now 18 out of 20 analysts covering it rate it a buy.
S&P Global (SPGI), which has 18 buy recommendations, is up 33%. T-Mobile US ( TMUS ), which started the year with 15 recommendations (and none against it) rose 15%, a nice gain, but not as good as the S&P. Schlumberger ( SLB ), with 18 consensus votes, fell about 3%.
Among the underrated stocks, only Southern Copper (SCCO) fared well. It rose nearly 43% as broad forecasts of a US recession proved inaccurate.
Clorox ( CLX ) and Greif ( GEF ) rose modestly, while American States Water ( AWR ) fell 11%.
Most favorite stocks right now
Schlumberger, second in analyst estimates a year ago, rose to number one with 20 endorsements and no dissents. It has a reputation as a leading oil services company with advanced reservoir mapping and well construction techniques. Like the analysts, I like these stocks.
S&P Global moved from third to second place. It has 19 buy recommendations and no “hold” or “sell” recommendations. S&P is the world’s largest bond rating agency, and it also provides financial information. I think analysts expect a rebound in bond issuance, which has been rare lately.
Houston-based natural gas processing and pipeline company Targa Resources ( TRGA ) is the third most appreciated stock. This is not for me, as debt is five times equity and the price-to-book ratio (price per share divided by corporate net worth) is over seven.
Arlington, Virginia-based Previa Health Group ( PRVA ) is fourth among analysts’ favorites. It describes itself as “a multi-specialty medical group led by leading independent physicians”. I like Previa’s clean balance sheet, but otherwise it doesn’t impress me enough to buy the stock.
The Worst Stocks of 2024
As 2024 progresses, the most disliked stock by analysts is Avista Corp (AVA), with three sell ratings out of four reviews. It is an electric and natural gas company based in Spokane, Washington, serving the Pacific Northwest.
I think the fear of legal liability related to wildfires explains the aversion of some analysts. On the positive side, Avista offers a 5% dividend yield.
Moelis & Co. (MC) comes in second with four “sell” ratings out of six reviews. The investment banking firm’s profit fell last year and revenue fell following a long-term downward trend. Subscription deals were thin in 2023, but maybe 2024 will be better.
The third most hated stock is Southern Copper, which performed well last year despite being hated by analysts. Can these stocks again defy analysts’ gloomy forecasts? Maybe, but the stock seems well-valued to me.
Rounding out the list is Cheniere Energy Partners (CQP), which operates liquefied natural gas terminals. It has seven “sell” ratings out of 11 reviews. Analysts like its parent, Cheniere Energy ( LNG ), which has a 16 “buy” rating.
Will the favorite stocks beat the hated ones this year? Based on past experience, it’s about 50/50.
Information: John Dorfman Among the stocks analyzed in today’s column, they have no place for individuals or consumers.
Original note written in English on Forbes.com and published in Spanish by Forbes Argentina.
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