Since not all companies are Wall Street favorites, particularly in an election year when President Joe Biden and former President Donald Trump have extremely different policy stances on key economic problems, stock downgrades may assist smart investors looking to maintain portfolio health.
Because of the Nvidia (NASDAQ:NVDA) boom, the Nasdaq Composite is up 18% and the S&P 500 is up 14% in the first half of 2024. However, accommodating stock downgrades in your market analysis helps since the broad market index has fared poorly in years of presidential elections.
A further reason to think about stock downgrades to prevent portfolio laggards is that Morgan Stanley and JPMorgan are worried about the stock market in 2024.
Morgan Stanley is cautious because, after a robust 2023 run, it feels that markets are overpriced. When the Federal rate drops, investor expectations might have been too high. The investment firm advises a well-rounded investment approach that emphasizes utilities, consumer goods, industrials, financials and value healthcare.
More cautiously, JPMorgan expects lower rates and a gradual unwinding of monetary policy but the global financial institution maintains a bearish view, believing the stock market is failing to reflect considerable risks and that a crash to 4200 is possible.
Amid market volatilities, persistent inflation and the sole rate cut this year, companies with dwindling prospects and recent stock downgrades are in danger, which compels astute investors to evaluate their future chances.
Infosys (INFY)
Infosys (NYSE:INFY) is not getting many analysts to love it these days because architectural changes are weakening its competitive advantages. As the Indian outsourcing giant battles to stay relevant in a future driven by generative AI, its average price target of $18.59 predicts a 0.16% drop from $18.62.
Susquehanna Financial Group recently maintained its negative outlook and lowered its price target on the company due to concerns about discretionary work delays and pricing pressure from AI’s wide availability and open sourcing.
In Q1 FY24, Infosys profits increased 11% year over year. Despite this, the business amended its FY24 sales outlook downward to 1% to 3.5%, disappointing the market and causing its NYSE American Depositary Receipts (ADRs) to decline 9%.
The declaration of a special dividend, announced with its Q1 results, did not perk up investor sentiment, already damaged thanks to INFY losing out on a major $1.5 billion deal with a worldwide artificial intelligence business.
Infosys’ volatility has been worsened by CFO Nilanjan Roy’s unexpected resignation. His departure comes after the huge AI arrangement fell through, making it harder for the company to reassure investors and the market. Unsurprisingly, the stock is copping several downgrades.
UiPath (PATH)
Citing macroeconomic concerns and a CEO change, Needham and BofA Securities cut their ratings on UiPath (NYSE:PATH) from Buy to Hold to Buy to Neutral, respectively.
UiPath’s shares slumped more than 30% the day CEO Robert Enslin departed. A poor first quarter, a poor second quarter, and a fiscal year 2025 projection led to this considerable decline. The company changed its projection, citing poor execution of a sales strategy, scaling up of growth products and failed investments.
Though its return on equity and net margin were negative, UiPath’s most recent quarter results did match Wall Street forecasts. Investors have turned off this performance, the macroeconomic backdrop and the company’s poor execution.
Conversely, the most recent community release, Community 2024.4, has new Semantic Activities for form automation, UI Automation Activities and an upgraded Vision Transformer AI model for UI element recognition.
With the aim of extending cloud-based automation capabilities for businesses in the UK, UiPath has declared that its Automation Cloud service is now accessible there on Microsoft Azure.
Furthermore, DocPath is a huge language model of UiPath to extract data from business documents. One of UiPath’s ongoing AI integration into automation systems consists in this effort.
Still, markets and stock declines don’t really show this. Rather, the near-term decline is on the minds of investors, which distinguishes PATH in stock downgrades.
Airbnb (ABNB)
Among numerous research firms questioning Airbnb (NASDAQ:ABNB) on growth concerns is Barclays. Barclays established a $100 price target while Airbnb slipped from Equalweight to Underweight. To blame are consumer financial issues, pent-up demand and online travel slow-down. Mario Lu of Barclays also spoke about economic risks and other lodging options.
Furthermore, CTO Aristotle Balogh and Airbnb CEO Brian Chesky are selling significant shares, which is never good for investor trust. For $17 million, Chesky sold 115,385 shares; Balogh 600 for $89,000.
Airbnb was fined $10 million in Australia for misreading online currency conversion. Brisbane has likewise cracked down on Airbnb to increase long-term housing.
New York, San Francisco and Los Angeles already have tight short-term renting regulations. Renting days are restricted and venues need registering. Local housing and zoning disputes continually challenge Airbnb. Legal concerns usually center on how short-term rentals impact house availability and pricing.
Increasing competition for Airbnb also comes from home exchange services like HomeExchange and Kindred, which are becoming more and more sought after as reasonably priced alternatives for rising travel costs.
On the date of publication, Faizan Farooque 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.
