The most recommended works barely surpass the most despised works

John Dorfman

If anyone could predict the future, you would think it would be Wall Street analysts. He has degrees from Harvard, Yale and other countries. They earn generous salaries. They have the latest computer programs and intelligent assistants that work for long periods of time.

However, in my 25-year study comparing the stocks most loved by analysts at the beginning of each year with their most despised stocks, the balance is roughly equal.

Analysts’ favorites posted an average gain of 6.7%. The stocks they hate posted an average of 6.5%. Meanwhile, the Standard & Poor’s 500 Total Return Index posted an average gain of 12.1%.

My study covers the years from 1998 to 2023, except for 2008, when I temporarily retired as a columnist. Each year, I look at four stocks unanimously praised by analysts and look at the four stocks that have the highest percentage of sell recommendations.

The study includes only US-based stocks covered by four or more analysts. The minimum market cap is $500 million. I used Zacks Investment Research as a source for analyst ratings.

Favorite stocks outperformed despised stocks 13 out of 25 times. In 1998 the Scorned Shares won 11 times and tied once.

Compared to the S&P 500, analysts’ preferred stocks rose only eight times. Hate stocks increased 10x.

2023 result

Last year, the analyst staff performed slightly better than usual. In 2023, your favorite picks returned an average of 25.6%, outperforming the S&P by 26.3%. The despised stock advanced 9.2% in the last year.

Karuna Therapeutics (KRTX), which started 2023 with buy recommendations from 19 analysts and opposition from none, is up 61%. It is working on drugs for schizophrenia and dementia-related psychosis. Now, 18 out of 20 analysts covering it have called it a buy.

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S&P Global (SPGI), which has 18 buy recommendations, rose 33%. T-Mobile US (TMUS), which had 15 recommendations when it started the year (and none against it), gained 15%, a nice gain, but not as good as the S&P. Schlumberger (SLB), with 18 unanimous votes, fell nearly 3%.

Among the lower rated stocks, only Southern Copper (SCCO) performed well. It surged nearly 43% as widespread predictions of a US recession proved wrong.

Clorox (CLX) and Greif (GEF) had slight gains, while American States Water (AWR) declined 11%.

Most favorite stock at the moment

Schlumberger, which was second in analyst estimates a year ago, rose to number one with 20 confirmations and no dissents. It has a reputation as a leading oil services company with advanced reservoir mapping and well construction technologies. Like the analysts, I also like these stocks.

S&P Global has moved from third to second position. It has 19 buy recommendations and no “hold” or “sell” recommendations. S&P is the world’s largest bond rating agency, and also provides financial information. I think analysts are expecting a surge in bond issuance, which has been rare recently.

The third most appreciated stock is Targa Resources (TRGA), a Houston-based natural gas processing and pipeline company. It’s not for me, because debt is five times equity, and the price-to-book ratio (share price divided by corporate net worth per share) is more than seven.

In fourth place among analysts’ favorites is Privea Health Group (PRVA) of Arlington, Virginia. It describes itself as “a multi-specialty medical group led by leading independent physicians”. I like Privia’s clean balance sheet, but otherwise it doesn’t impress me enough to buy the stock.

Most despised stocks of 2024

As 2024 moves forward, the most disliked stock by analysts is Avista Corp (AVA), with a Sell rating on three out of four reviews. It is an electric and natural gas company based in Spokane, Washington, serving the Pacific Northwest.

I think the fear of wildfire-related legal liability explains the dislike of some analysts. On the positive side, Avista offers a 5% dividend yield.

Moelis & Company (MC) is in second place with four “sell” ratings out of six reviews. The investment banking firm’s profits slipped last year and revenues are on a long-term downward trend. Subscription deals were low in 2023, but perhaps 2024 will be better.

The third most despised stock is Southern Copper, which performed well last year despite analyst hatred. Can these stocks again defy analysts’ disappointing predictions? Maybe, but the stock seems well valued to me.

Completing the list is defunct Cheniere Energy Partners (CQP), which operates liquefied natural gas terminals. It has seven “sell” ratings out of 11 reviews. Analysts like its parent company Cheniere Energy (LNG), which has 16 “Buy” ratings.

Will darling stocks beat despised stocks this year? Based on past experience, it’s about 50/50.

Information: John Dorfman He has no positions, personally or for clients, in the stocks analyzed in today’s column.

The original note is written in English forbes.com and published in Spanish by forbes argentina,

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