1100 13th Street, NW, Suite 1000Washington, DC 20005202.887.6400Toll-free: 800.544.0155
All Contents © 2020The Kiplinger Washington Editors
By Harriet Lefton, Contributing Writer
| December 4, 2018
There’s a lot of talk about Wall Street’s top-rated stocks. As 2018 ends and 2019 nears, everyone – including us – is talking about our favorite stock picks for 2019, or even the next decade.
But not every stock is a well-loved lunker.
There are numerous stocks with bearish, or at least increasingly bearish, Wall Street sentiment. Stocks where you should look before you leap. And with the market in such a precarious state right now, it makes even more sense to pay attention to those companies that are facing significant challenges ahead.
Here we used TipRanks market data to pinpoint the Street’s worst-rated stocks right now. We scanned a database of more than 5,000 stocks to find the following picks – some of which represent stocks to sell, and others of which you may want to hold if you own, but certainly don’t want to chase. All stocks, bar one, have an analyst consensus of “Hold” or “Sell.” There’s one exception, but as you’ll see, sentiment is quickly turning against it too.
Data is as of Dec. 4, 2018. Stocks are listed in alphabetical order.
Market value: $138.2 billion
TipRanks consensus price target: $98.10 (5% upside potential)
TipRanks consensus rating: Hold
AbbVie (ABBV, $93.66) – a spinoff of Abbott Laboratories (ABT) – is the pharmaceutical company known for Humira, one of the greatest blockbuster drugs of all time.
However, AbbVie has entered a period of slower growth, with increased uncertainty about long-term growth prospects. BMO Capital’s Alex Arfaei sets out a particularly stark picture of what lies ahead.
“Without strategic change, we believe ABBV should continue to underperform,” the analyst told investors on Nov. 4. He has a “Sell” rating on the stock with a $71 price target, implying a pullback in shares of about 24%.
AbbVie’s revenue growth should slow until 2022, Arfaei writes, and decline thereafter, pressuring valuations. And as for 2019, he doesn’t see any events on the horizon that could meaningfully address fundamental concerns. In contrast to management’s guidance, he forecasts declining revenue starting 2023 with Humira’s U.S. biosimilar erosion.
“Given the magnitude of probable revenue erosion, we believe BIG strategic action(s) are needed. (We’re reminded of Pfizer+Wyeth before Lipitor’s patent cliff.) We expect increased pressure on management for strategic change,” he concludes. You can get an ABBV Research Report from TipRanks for more information.
Market value: $1.3 billion
TipRanks consensus price target: $19.14 (3% downside potential)
TipRanks consensus rating: Moderate Sell
Abercombie & Fitch (ANF, $19.59) is another struggling retailer to strike off your buy list. In the past three months, not a single analyst has published a buy-equivalent rating on the stock. The last such call was roughly 10 months ago.
Meanwhile, the consensus target indicates that analysts broadly think ANF is heading lower, not higher. So do the two sell calls over the past quarter, meshed with five holds.
Despite return to profitability in 2017, the company’s longer-term outlook remains precarious. “With the company facing significant secular headwinds, we see a lack of visibility on ANF’s longer-term (earnings before interest and taxes) margin profile,” RBC Capital’s Brian Tunick writes.
Abercrombie is currently in the midst of a major organizational, product and strategy overhaul to stabilize its top line by boosting sales at both Abercrombie and offshoot Hollister. These updates could not be more necessary, writes the RBC analyst, with the company ending 2016 with productivity and profitability at trough levels.
Tuick has a “Hold” rating and a $24 price target on ANF, and warns that shares are likely to remain volatile. That’s in part because the company has 25% short interest, meaning one in every four outstanding shares of Abercrombie & Fitch is being used to short the company. Find out more from the ANF Research Report from TipRanks.
Market value: $11.8 billion
TipRanks consensus price target: $35.67 (8% downside potential)
Steer clear of soupmaker Campbell Soup (CPB, $38.76), or so says the Street. This stock not only scores a “Moderate Sell” analyst consensus, but Wall Street’s brain trust also predicts that shares will drop another 8% or so from current levels – that’s in addition to the 19% plunge suffered so far this year.
The reception to news of an agreement between CPB and activist investor Daniel Loeb has been unenthusiastic, to say the least. The company announced on Nov. 26 that Loeb’s Third Point fund, which currently holds a 7% stake in Campbell Soup, will receive two seats on the board of directors and a say in the appointment of the next CEO.
But top Tigress Financial analyst Ivan Feinseth says the next company chief will have a firmly uphill battle ahead. The analyst describes this task as trying to unlock “value in a company that in my view has very little intrinsic value to unlock.”
Feinseth recommends selling CPB and warns investors that downside potential could bring shares down from current levels to the low $30s. Bank of America’s Bryan Spillane agrees, saying that Campbell’s stock trades at an unwarranted premium to peers and should drop about 20% to $31 per share. Investors interested in more analyst feedback can find it in this free CPB Research Report from TipRanks.
Market value: $18.7 billion
TipRanks consensus price target: $8 (14% downside potential)
German bank Deutsche Bank (DB, $9.30) has lost more than half its value in 2018. You can blame multiple factors, from a management shakeup to disappointing earnings and even a ratings downgrade by Moody’s back in August.
Now there is a fresh concern plaguing the stock. Police in Germany have raided the company’s Frankfurt offices in a money laundering probe. Two employees are being investigated over allegations that they helped clients launder money via offshore accounts.
Sylvie Matherat, the bank’s chief regulatory officer, has already admitted that DB needs to improve its money laundering and terror funding control. According to Dow Jones, she is now at risk of being ousted by the firm alongside Deutsche Bank’s Americas CEO Tom Patrick.
“We confirm that police are currently investigating our bank at various locations in Germany. The investigation concerns the Panama Papers,” Deutsche Bank said in a translated statement.
RBC Capital’s Anke Reingen, who rates Deutsche Bank as “Underperform,” writes, “DBK continues to focus on cost reduction and is targeting a further (2.1 billion euros) reduction in costs, or 9% over the next two years. There are, however, implications from this for revenues in our view given another round of restructuring and the offset of lower revenues from business disposals.” Get the DB Research Report from TipRanks.
Market value: $69.2 billion
TipRanks consensus price target: $268.17 (40% upside potential)
TipRanks consensus rating: Moderate Buy
When an analyst downgrades a stock, it’s worth paying attention. And in the past couple of weeks, Goldman Sachs (GS, $191.63) has received two rating downgrades. Both Merrill Lynch’s Michael Carrier and Morgan Stanley’s Betsy Graseck downgraded GS to “Hold.” They also slashed their respective price targets from $280 to $225, and from $291 to $226.
The reason: the multibillion-dollar 1Malaysia Development Berhad (1MDB) bank scandal.
Reports have emerged that the bank’s former CEO Lloyd Blankfein attended two meetings with Jho Low, a key figure in the investigation. The financier is accused of bribing officials and stealing billions of dollars from the fund.
“While we view the current valuation as discounting most of the potential negative scenarios related to 1MDB, we only have limited information and the uncertainty could linger for a while and limit the upside potential if markets stabilize,” Carrier told clients.
Graseck agreed, writing, “It is unclear how long the issue will take to resolve, what the fines and penalties could be, and what costs Goldman Sachs will subsequently incur to satisfy any demands from regulators.”
She explained that these risks, coupled with potential headline risks in the coming months (additional lawsuits, additional regulatory probes, internal reviews), led to her stock downgrade. You can learn more about the brewing troubles in the GS Research Report from TipRanks.
Market value: $757.5 million
TipRanks consensus price target: $6.69 (28% upside potential)
Action camera maker GoPro (GPRO, $5.20) is one stock you certainly shouldn’t buy on the dip. Shares have lost nearly a third of their value in 2018 and more than 85% over the past five years. Worst of all, the Street remains skeptical about the prospects for a speedy recovery, with analysts calling this a “show me” stock.
Morgan Stanley’s Yuuji Anderson sees increased promotional activity as an ominous sign. “Plans to step up promotional activity for the Silver and White highlight our concern over mid- and low-end camera demand heading into the holidays,” she said.
This is even more worrying given that performance over the holiday season is so critical for stock performance. “Inventory exiting the year will be a key indicator for GoPro’s recovery, and we remain skeptical on the recovery trajectory given the historical pace of functional improvements to the camera ecosystem and consumer receptivity.”
As a result, Anderson reiterated her “Sell” rating with a price target of just $5 – somehow more downside risk ahead. Get the GPRO Research Report from TipRanks.
Market value: $8.9 billion
TipRanks consensus price target: $133 (16% upside potential)
High-end fashion retailer Ralph Lauren (RL, $114.94) is at a precarious point right now. True, the company has the potential to turn around. But right now the Street believes that 1) it is better to wait and see and 2) expectations are still too high. This is despite shares already losing about 16% of their value in the fourth quarter of 2018.
“We believe it remains to be seen whether RL can continue to deliver the large EPS beats that have been the primary driver of shares over the past year” writes Barclays analyst Chethan Mallela, who has a “Sell” rating and a $124 price target on Ralph Lauren shares.
That’s actually more optimistic than UBS analyst Jay Sole, who’s also a “Sell” but puts his target at $112 – a little lower than current prices. Hardly an appealing proposition considering the risk involved.
Sole says the brand isn’t resonating with customers as well as it once did. And the situation isn’t improving. Ralph Lauren faces limited pricing power and a lack of core brand strength. As a result, the UBS analyst believes tougher 2020 comps will prompt downward earnings revisions. Check out TipRanks for an RL Research Report.
Harriet Lefton is head of content at TipRanks, a comprehensive investing tool that tracks more than 4,800 Wall Street analysts as well as hedge funds and insiders. You can find more of their stock insights here.