Stock analysts should carry pom-poms, for all the cheerleading they seem to do for the companies they cover. For S&P 500 companies, 49% of recommendations say “buy” and 44% say “hold.” Just 7% say “sell.”Perhaps analysts find S&P 500 companies or the broader stock market particularly attractive now, but the dearth of “sell” recommendations is nothing new. Maybe “hold,” as vaguely positive as it may sound (investors tend to hold stocks they like), has become an unlikely euphemism for “don’t bother to hold.” Whatever the case, analysts who go overtly negative usually seem to have good reason. Long-term studies show that “buy” recommendations have little predictive power, but that “sells” foretell underperformance more often than not. Analysts, you might say, can’t quite pick winners, but can sure spot stinkers.
The companies below have attracted more “sell” recommendations than “buys,” and their consensus recommendations have turned more negative within the past four weeks.
Among scores measuring the creditworthiness of consumers, the most widely used is the FICO score, administered by the Fair Isaac Corporation (FICO). (It’s named for its founders, engineer Bill Fair and math whiz Earl Isaac.) The company seems financially strong, with minimal debt, plenty of cash flow and even a tiny dividend, and its shares sell for a reasonable 13 times forward earnings. But sales and earnings have plunged by double-digit percentages over the past year. Fair Isaac’s fortunes are tied to the use of consumer credit, and consumers are spending little and borrowing less at the moment.
Boyd Gaming (BYD) owns casinos in Las Vegas, Atlantic City and a handful of other gambling towns. The stock is modestly priced relative to the money the company made two years ago; of course, this isn’t two years ago. Sales for Boyd are expected to fall 7% this year after a 14% drop last year. Profits have fallen much faster. The company owes plenty, and its largest market, Vegas, is among the industry’s worst performers, which might limit free cash flow and make debt repayment a long, slow slog.
Grocer A&P is formerly known as the Great Atlantic & Pacific Tea Company (GAP). The name suggests splendor, but the chain has long been an uninspired performer. It stopped paying regular dividends in 2000 (although it made a large one-time payment in 2006). It hasn’t turned a yearly profit since 2007, and isn’t expected to this fiscal year (ending Feb. 28, 2010) or next. The company’s stock price has more than doubled since the summer. Merger whisperings might have played a part. A&P’s largest shareholder, German holding company Tengelemann, was reported in a Frankfurt newspaper earlier this month to be considering a merger. Karen Short, an analyst with BMO Capital markets, an investment bank affiliated with the Bank of Montreal, pooh-poohed the merger talk in a Nov. 9 note to clients. She wrote that the comments were likely made “to keep A&P’s stock price at the current, lofty levels” and that considering a merger is far easier than finding a buyer.
Jack Hough is an associate editor at SmartMoney.com and author of "Your Next Great Stock."Try our powerful Select Stock Screener to discover investment opportunities that meet your criteria.
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