As 2022 began, Amazon.com Inc. (AMZN) was a favorite stock of Wall Street analysts. Thirty-one analysts said “buy”, no “hold” or “sell” was asked. The stock has fallen nearly 50% last year.
This is normal. Other analyst firm favorites at the start of the year, Microsoft (MSFT), Tenable Holdings (TENB) and ZoomInfo Technologies (ZI), fell 28%, 31% and 53%, respectively.
Thus, the analyst’s darling fell by 40% on average.
Last year wasn’t the only time Wall Street scholars looked like idiots. For 24 years, I’ve tracked the performance of his four stocks that analysts like most and four that analysts hate most at the start of the year.
Liked stocks have an average return of 5.9%, disliked stocks have returned 6.4%, and the S&P has an average return of 11.5%.
The numbers cover all years from 1998 to 2022, except for 2008, when I temporarily retired from columnist work.
In 24 years, the analyst’s darling has outperformed the S&P 500 only seven times and underperformed the index 17 times. Analysts have 12 wins, 11 losses and 1 draw against hated stocks.
Neglected stocks beat out beloved stocks last year, but that doesn’t mean they’ve done well. (GME) is down 50% and J. Sainsbury PLC (JSAIY) is down 24%. Only Consolidated Edison Inc. (ED) rose, returning 16%.
Averaging these four numbers yields an average return of -33%, 7 points better than the analyst favorite, but 15 points worse than the S&P 500, which fell 18.11% over the year after factoring in dividends. increase.
This does not mean that brokerage analysts are stupid. it’s not. But humans simply cannot predict the future. Additionally, analysts may be subject to potential sources of bias, such as firms’ desire to obtain investment banking assignments from them.
As 2023 begins, the analyst’s top pick is Karuna Therapeutics Inc. (KRTX), with a ‘buy’ rating of 19 and no ‘hold’ or ‘sell’ ratings. The biotech company, headquartered in Boston, Massachusetts, seeks to address neuropsychiatric disorders.
I have written several articles arguing that investors should avoid stocks that sell for more than 100 times earnings. Karuna sells for 136 times his earnings.
Second on our list of favorites is SLB (SLB), the world’s largest oilfield services company, formerly Schlumberger. There are 18 ‘buys’ and no ‘holds’ or ‘sells’. I agree with analysts on this as I believe the oil and gas industry is in a sustainable recovery.
In third darling is Standard & Poor’s parent company S&P Global Inc. (SPGI) with a 16 out of 16 opinion buy rating. It provides financial information, publishes market indices, and runs a large bond rating business. Good company, but the stock is well valued in my opinion.
In fourth place is T-Mobile US Inc. (TMUS), undisputed with a “buy” rating of 15. T-Mobile, partly owned by Deutsche Telekom, is gaining market share in the US, but appears to be sacrificing profitability for it. Stocks are doing well, but he’s not one of my favorite stocks.
Equity analysts despise American States Water (AWR) the most, with 3 out of 5 opinions rated as Sell. This company, which was also on his dislike list in 2019, is up 31%. I tend to agree with the analyst’s distaste, but I don’t think it’s particularly bad.
The same rating profile applies to Greif Inc. (GEF). Greif manufactures industrial packages such as steel, fiber and plastic drums. I think it’s a decent small company.
Third in the analyst’s kennel is Southern Copper Corp. (SCCO). It is followed by 7 analysts and rated as ‘sell’ by 4. I’ve owned this stock in the past with good results, but owning a copper company is scary when the economy seems headed for recession.
Rounding out the Despised Brigade is the Clorox Company (CLX) with an 8 “sell” rating out of 14 opinions. This inventory has doubled during the pandemic due to the enthusiasm for sanitizing products. I agree with the analyst’s disdain here. It seems to me that stocks are high and debt is too high.
Analyst data for this year’s (and past years’) survey was provided by Zacks Investment Research (www.zacks.com). Rankings are based on the percentage of analysts with favorable or unfavorable ratings, not the raw number of analysts.
Disclosure: I do not hold any positions for myself or my clients in the stocks featured in today’s column.
John Dorfman is the chairman and syndicated columnist of Dorfman Value Investments LLC in Newton Upper Falls, Massachusetts. His firm or client may own or trade any of the securities featured in this column. You can contact him by email.