3 Popular Stocks That Wall Street Is Dead Wrong About

It’s a simple rule that our parents teach us: Running with the wrong crowd can get you in trouble. The same simple rule applies to investing in stocks, though there’s a twist.


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The analyst community is usually revered as the authority on Wall Street. For decades, an analyst’s view on a stock was considered the spoken word on what investors should be doing, buy, hold or sell. Today, not so much the case.

Our studies of the historical analyst recommendation data show that stocks that hold the majority of their analyst recommendations in the “buy” category have a tendency to underperform the S&P 500 while those stocks that are heavily recommended as a “sell” tend to perform better than the market.

For reference, 13 of the companies that meet our criteria as being over-loved (more than 80% buy recommendations) have averages a return of -7.5% so far in 2015. Compare that to the companies that have fewer than 30% of analyst recommendations in the “buy” category and you start to get an idea of which crowd is better to hang out with as an investor. So far, these “underloved” companies have average a return of 8.5% in 2015, compared to the S&P 500’s return of 2.5%.

Believe it or not, this simple rule — avoiding the analysts’ heavily recommended stocks — should ban three popular stocks from your portfolio right now.

Popular Stocks to Sell: Alibaba Group Holding Ltd (BABA)

Alibaba Group Holding Ltd (BABA)

Wildly popular Chinese retailer Alibaba Group Holding Ltd (NYSE:BABA) grabbed the market’s attention and the love of analysts well before its IPO last year. The stock didn’t fail to impress, gaining 34% in its first quarter of trading … but nothing has materialized for the company since then.

Of course, 90% of the analysts covering BABA stock have it ranked a “buy,” which means there is scant room for upgrades and lots of room for downgrades, especially now that the honeymoon has been over for a while.

BABA stock is now trading below its IPO price, which might start rattling the bullish analysts into downgrading this stock.

Keep clear of Alibaba for now.

Popular Stocks to Sell: Baidu Inc (ADR) (BIDU)

Baidu Inc (ADR) (BIDU)

Chinese search portal Baidu Inc (ADR) (NASDAQ:BIDU) has been on a great run for the last two years, but the trends are beginning to shift, leaving the extremely bullish stance of the analyst community at risk. Right now, 93% of the analysts covering BIDU have it ranked a “buy,” which has been the right call — until right now.

BIDU currently is pressuring the technically significant $200 level. A break below this mark will cause technical selling to enter the market and most likely trigger some downgrades from the bullish analyst crowd, which will drive prices even lower.

Popular Stocks to Sell: Delta Air Lines, Inc. (DAL)

Delta Air Lines, Inc. (DAL)

Transport stocks have benefited from dwindling oil prices and soaring fees as travelers continue to take to the air. While we don’t think oil prices will turn on these companies, we do believe the easy money has been made within the group.

Delta Air Lines, Inc. (NYSE:DAL) continues to curb the number of flights it offers as low-cost airlines are grabbing market share from this long-time behemoth. We’re expecting that the 90% of analysts with a “buy” rating on DAL stock will begin changing their outlook as Delta is now trailing its peers and the rest of the market.

In other words, consider getting out of DAL while the getting’s good.

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

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Article printed from InvestorPlace Media, https://investorplace.com/2015/03/3-popular-stocks-analysts-bidu-baba-dal/.

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