Beat Stock Analysts at Their Own Game

by Johnson Research Group | April 26, 2013 8:40 am

Beat Stock Analysts at Their Own Game

“Most hated rally” is one of the financial media’s most loved terms right now.

What they’re referring to is how stocks are continuing to drip higher despite analysts’ and portfolio managers’ belief that the market is due for a correction. Of course, that the market is continuing higher amidst doubt from the analyst community is not a new concept.

In fact, this crowd of investors is on the wrong side of the market more often than they would like — one reason why we closely monitor the analyst recommendation data on more than 3,800 stocks to help pinpoint buying opportunities.

You see, the analyst community is rarely ahead of the curve when it comes to upgrading stocks. Typically, an analyst will upgrade or downgrade a stock after it has already set itself into a trend. Take Apple (NASDAQ:AAPL[1]) for example. It was almost impossible to find an analyst who was bearish on Apple when the stock was trading near its all-time highs, but the downgrades started piling in AAPL stock broke through the $600 level — some 15% below its highs. The same situation often is true on the way up; analysts are slow to upgrade a stock when it is outperforming the market.

This leads us to the below table, which displays the 25 companies that resulted from our search for technically strong stocks that remain hated by analysts. We’re using a buy recommendation threshold of 40% or lower to identify a stock as “hated” for this project.

AnalystTable Beat Stock Analysts at Their Own Game[2]

The following three stocks are of particular interest to us given their current technical and sentimental situation:

Becton, Dickinson and Co.

042513 BDX 300x192 Beat Stock Analysts at Their Own Game
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Becton, Dickinson and Co. (NYSE:BDX[3]) is a worldwide seller of medical devices and instrument systems. Products delivered by BDX include needles, syringes and intravenous catheters for medication delivery.

BDX shares have outperformed the S&P 500 by more than two times during the past three months as BDX forges toward new highs. But despite the performance, the analyst community hates the stock with more than 80% of the current recommendations falling into the “hold” or “sell” categories.

These same analysts will be forced to upgrade their outlooks for the company as shares break higher, which will in turn put even more upward pressure on Becton, Dickinson.

Paychex

042513 PAYX 300x190 Beat Stock Analysts at Their Own Game
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This one makes intuitive sense. The jobs market is still improving from its weary state a few years ago, and one of the companies that benefits from this improvement is Paychex (NASDAQ:PAYX[4]).

Earnings results have been consistent in meeting or beating analyst expectations for more than the last three years, providing analysts with plenty of reasons to be bullish on the shares.

Despite this, 80% of analysts have either a “hold” or “sell” on the stock, meaning there’s a large group of analysts that likely will be rushing to play catch-up in the weeks ahead.

Fiserv

042513 FISV 300x187 Beat Stock Analysts at Their Own Game
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We highlighted Fiserv (NASDAQ:FISV[5]) as one of our Four Workhorses of Technology[6] in November given the stock’s leadership in the Nasdaq 100 Index. Almost six months later, and this stock still is leading the way higher as it breaks to the $90 level.

However, the analyst community still remains slow to adapt to this leader — only 29% of them have FISV ranked a “buy,” signaling a high likelihood that some upgrades might be looming that could drive prices higher. We’re targeting a move to $100 before the end of the current quarter.

As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.

Endnotes:
  1. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  2. [Image]: http://investorplace.com/wp-content/uploads/2013/04/AnalystTable.png
  3. BDX: http://studio-5.financialcontent.com/investplace/quote?Symbol=BDX
  4. PAYX: http://studio-5.financialcontent.com/investplace/quote?Symbol=PAYX
  5. FISV: http://studio-5.financialcontent.com/investplace/quote?Symbol=FISV
  6. Four Workhorses of Technology: http://investorplace.com/2012/11/the-4-workhorses-of-technology-ebay-fis-qcom-v/

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