I recently wrote about 7 stocks that analysts love: They all had at least 25% upside, according to Wall Street bigwigs.
This is the exact opposite. These are stocks to sell, run away from, and ultimately forget about as you undergo hypnosis to erase their names from your memory permanently.
That’s because analysts — sell-side analysts, at that — think all seven of the following stocks are destined to fall. Some are only supposed to decline 10% or so, while others could crater 50%.
Recall that sell calls are rare for a host of reasons. For instance, it’s uncomfortable to slap a sell call on some stocks, because you have to deal with management (and their competitors) all the time. Not to mention, almost everyone in the market is long, so going against the tide makes you stand out if you make the wrong call. In other words, there’s an obvious and well-known bias built into price targets from sell-side analysts, who tend to wax optimistic.
That means these negative outlooks carry far more weight than the rosy, bullish ones, which are much more frequent.
What follows is a list of seven beleaguered stocks that analysts are most sour on, according to their consensus price target. Prepare for some ugliness.
Stocks to Sell: 7 Stocks Analysts Love to Hate — Diamond Offshore Drilling Inc (DO)
Price Target: $20.26
Downside to Target: -3.5%
Diamond Offshore Drilling Inc (DO), the least egregiously bad of these seven stocks from analysts’ point of view, is a victim of circumstance. The contract drilling industry hasn’t exactly been thriving recently, as the price of oil has languished in 2015 due to global overproduction and a slowdown in demand from China.
The stronger dollar has also pressured the dollar-denominated price of oil, which now trades in the low $40s per barrel. The rates that Diamond can charge for producers to use its drilling rigs moves proportionately with oil prices, so it’s not surprising that analysts expect a dramatic drop in revenue this year (-15%). In 2016, the revenue decline is supposed to continue, with sales slumping 25%.
Shares of DO have already fallen 40% in the year-to-date, but with momentum not in its favor and a relatively high debt load, it’s no wonder the Street sees it going lower.
Stocks to Sell: 7 Stocks Analysts Love to Hate — Transocean LTD (RIG)
Price Target: $12.15
Downside to Target: -6.5%
Transocean LTD (RIG), like Diamond Offshore, is another ill-fated offshore driller. The primary reason analysts are so down on this stock is again, the macro environment. Revenue is projected to fall 25% in 2015 and 33% in 2016 due to the slump in energy prices.
But liquidity concerns are at the heart of why Wall Street hates this stock. RIG was forced to suspend its dividend for the second half of 2015 as it tries to conserve as much cash as possible during a time where the future of energy prices is far from certain.
Additionally, its backlog has dwindled from $21.2 billion at the beginning of the year to $16.9 billion through October. Backlog essentially gives investors a window into the amount of future revenue under contract, so seeing it slump so quickly in such a short period of time is, without a doubt, worrisome.
Stocks to Sell: 7 Stocks Analysts Love to Hate — Paychex, Inc. (PAYX)
Price Target: $47.27
Downside to Target: -11%
Paychex, Inc. (PAYX) is probably the most counterintuitive name on today’s list. The payroll processing and human resources firm has benefited from a secular uptrend in employment recently, and shares are up 15% on the year. With unemployment reaching 5.0% in October for the first time since April 2008, this one has macro trends on its side.
Still, analysts expect PAYX to recede within the next year, despite the fact that roughly 95% of new jobs are being created by small businesses … and Paychex focuses on small- and medium-sized businesses.
I happen to disagree with the analysts on this call, and think the stock’s 3.2% dividend is just another reason to buy. If shares don’t take a nasty tumble anytime soon, we could very realistically see a flurry of analysts revise their price targets modestly higher.
Stocks to Sell: 7 Stocks Analysts Love to Hate — Motorola Solutions Inc (MSI)
Downside to Target: -12%
Motorola Solutions Inc (MSI) is having itself a pretty solid 2015. Up about 6% on the year, it’s beating the S&P 500 by around five percentage points. Since the communication equipment company also shells out a 2.2% dividend, the stock’s total return on the year is even higher — around 10%.
Not bad, considering the flat market.
But past performance is no indicator of future results, and analysts aren’t optimistic about prospects going forward. Revenue is expected to fall about 3% this year, although earnings per share (EPS) are projected to jump 27%. Before you get too excited, though, much of that gain can be attributed to an aggressive $2 billion stock buyback program.
While buybacks sound great in theory, they can actually be motivated for all the wrong reasons, serving to destruct long-term value.
Stocks to Sell: 7 Stocks Analysts Love to Hate — Angie’s List Inc (ANGI)
Price Target: $7.44
Downside to Target: -26%
Angie’s List Inc (ANGI), which is expected to post its very first profitable year in 2015, isn’t expected to be profitable for investors going forward.
The company runs a website that allows consumers to find quality local professional home contractors, but ever since its IPO in 2011, it’s been nothing but trouble for investors. Shares are down 35% since their first-day closing price.
That’s true even after a three-month rally that has seen ANGI stock literally double in price. Much of that came as a result of an unsolicited tender offer made by IAC/Interactive (IACI) for $8.75 per share. The stock shot above $10 after that, as investors reacted to what they believed to be a lowball offer.
While buyout offers can sometimes give a stock price a “floor,” or minimum value it won’t trade below, the reluctance of ANGI board members to consider any merger offers before executing their own growth plan means the company could ultimately turn away suitors and suffer as its initiatives flounder.
Stocks to Sell: 7 Stocks Analysts Love to Hate — Weight Watchers International, Inc. (WTW)
Price Target: $19.20
Downside to Target: -27%
Weight isn’t the only things Weight Watchers International, Inc. (WTW) will help you lose. Wall Street seems to think it can also do wonders in slimming the size of your portfolio.
The price target of $19.20 represents significant downside from where the stock currently trades, but about two months ago, when WTW stock traded around $6 a pop to begin November, that target price would’ve seemed patently absurd. Then, out of nowhere, Oprah Winfrey inked a deal with the company, bought 10% of the stock, joined the board, and sent shares on the rally of a lifetime.
The stock would soon soar to the upper $20s, but there’s ample reason to believe shares are overvalued. Memberships have been in secular decline, and although the company now expects Q4 recruits to be positive after the Oprah boost, how long does that effect last?
There’s also the issue that much of the Oprah rally was actually a result of a legendary short squeeze, as those betting against the stock were forced to close out their positions, cut their losses, and purchase WTW after it jumped.
Stocks to Sell: 7 Stocks Analysts Love to Hate — Sears Holdings Corp (SHLD)
Price Target: $9.00
Downside to Target: -55%
Finally, the stock with the worst prospects: Sears Holdings Corp (SHLD). Although the department store is just now coming off a “good” quarter, it’s rather depressing what “good” has come to mean.
Revenue was down 20% year-over-year, and the company lost a whopping $454 million in Q3, or $4.26 per share.
Although that’s a smaller loss than the $548 million it lost a year ago, that’s hardly a reason to cheer. Sears epitomizes everything investors hate. Revenues are on a steep, stubborn, multiyear decline. The company has been closing down store after underperforming store, yet still sees same-store-sales crater.
SHLD has been slow to adapt to the age of e-commerce, and shares have crashed from highs above $190 per share in 2007 to $20 per share today.
There is literally no upside to owning Sears here, unless you believe it’s destined for some leveraged buyout, or think the company will turn itself around naturally.
Both are pipe dreams. Next stop: $9.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.