One of the scariest things to do as an investor is to take a critical look at one’s portfolio. Indeed, scenario analysis can be important, to see how much downside potential certain holdings may have. And while predicting the future is essentially impossible, knowing which stocks are poised to plunge, if nothing changes, is important.
One clear sign that things are not headed in the right direction for companies is deteriorating analyst ratings. Analysts aren’t great at predicting the future. However, they tend to work closely with companies, holding deep insights into the firms they are tasked with covering. This can help uncover unseen issues that more casual observers simply cannot.
In any case, the stocks below do suffer from weakening ratings. Worsening ratings often coincide with problematic fundamentals. Those too are present in the shares represented below.
| WFC | Wells Fargo | $41.58 |
| VNO | Vornado Realty Trust | $15.61 |
| ED | Consolidated Edison | $92.61 |
Wells Fargo (WFC)
Wells Fargo (NYSE:WFC) is the fourth largest bank in the United States. For that reason, it might be surprising to find the company on this list of stocks to sell. Indeed, in the wake of the regional banking collapse, investors fled to larger banks for their perceived safety. Wells Fargo certainly benefited from that trend, improving the bank’s fundamentals in the near-term.
Additionally, Wells Fargo’s fundamentals have shown relatively consistent improvement over the past quarter, overall. Revenues grew, net income increased, all while the bank increased provisional losses as risks became more evident. None of these factors suggests that Wells Fargo is particularly worthy of selling. Nor have analysts soured on WFC stock recently.
However, the problem is that Wells Fargo is arguably the least-trusted major bank, and that’s saying something. In December the company was ordered to pay $2 billion in order to redress improper home foreclosures, illegally repossessed vehicles, and improper fees. The judgment also included a $1.7 billion civil penalty. The company has a history of problems, which is why I would sell it despite the perception that it’s a good bank due to its size. There are simply too many other great options in this sector to buy right now.
Vornado Realty Trust (VNO)
Vornado Realty Trust (NYSE:VNO) is a commercial real estate stock with heavily-concentrated exposure to office space across New York, Chicago, and San Francisco. The thesis with this one is simple – it makes sense to sell VNO stock, due to the reasonable concerns around the commercial real estate sector, and indications a potential collapse could be underway.
The company is sending out alarm signals that investors would be wise to yield. Vornado Realty Trust announced that it will be postponing dividend payments until the end of 2023. There’s little indication that it will restart paying dividends at that point. Unfortunately, the firm’s dividend was one of the primary reasons to own its stock. Previously, VNO stock paid out a whopping 11% yield. But that’s the bargain investors will face in the REITs space – the riskiest options will pay out the riskiest dividends, which could get cut when times get tough.
Further, Vornado’s net income declined five-fold in Q1. All of the signs are screaming loudly and clearly that Vornado Realty Trust is in deep trouble, and investors would therefore be wise to stay far away.
Consolidated Edison (ED)
Consolidated Edison (NYSE:ED) is an interesting stock simply because it should be much less risky. It is a utility company ,and utility companies are generally low risk. Yet, there are signals that Consolidated Edison shares are likely to move downward for the foreseeable future.
For one, the company’s share price and analyst ratings are mismatched. Analysts are underweight the stock, yet ED shares trade above the average analyst target price. In short, analysts covering the company believe it should be priced lower than it currently is.
The company sent a seemingly contradictory message in its May earnings report for Q1. Management boasted about investing in the clean energy future, while simultaneously selling off the firm’s clean energy business. While that led to strong earnings during the period it’s also difficult to reconcile the message. Is Consolidated Edison going to bring green energy to New York City or not? The company is a sell not necessarily because of this clear contradiction, but also because it is poorly-rated and overbought.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
