After weeks of new highs after new highs in the Dow and S&P 500, investors have finally started to see some selling of stocks in August. This has historically not been a good month for equity indexes anyhow. Still, the bull market is now almost eight and a half years old, and investors have generated profits after continually buying every market sell-off for years now. 24/7 Wall St. reviews dozens of analyst research reports each day, which turns out to be hundreds of analyst reports per week.
Investors often hear from their brokers and analysts that they should buy this stock or that stock. What they are told much less often is when they should sell a stock. When analysts do actually their clients to sell a stock, it comes in the form of ratings such as Sell, Underweight and Underperform. So far in August there have been at least 10 key Sell-equivalent ratings that have stood out.
Whether investors should trust these Sell ratings is something that should be given great consideration. 24/7 Wall St. doesn’t trust an analyst report just because it was published. Some analysts get their calls wrong. Sometimes they are painfully wrong, and that admission has been seen in a couple of August’s calls to sell from analysts.
On top of the analyst call and the logic behind each one, we have included a date for each call. Also added has been color on trading, how the each stock has reacted and how each stock has traded over the past year. We have included the consensus analyst target prices for each stock so that investors can see how they stack up against the rest of the analyst community.
There are many caveats that need to be considered here, but here are 10 of the top Sell-equivalent ratings that 24/7 Wall St. has tracked so far in August of 2017.
Alliance Data Systems: Improperly Classified and Improperly Valued
Alliance Data Systems Corp. (NYSE: ADS) was reiterated as Underperform at Credit Suisse on August 10, but the firm’s sum of the parts valuation is down at $174.00 per share. Credit Suisse called ADS a house of cards and they called it as a mis-indexed company as a technology company which props up the trading multiple. The firm further noted that there are mounting cash flow pressures which could violate ADS’s debt covenant(s), a relatively lower credit quality consumer base, and also as having a high exposure to retail disruption with sales growth trending below guidance.
ADS shares were down 3.3% at $224.25 in the aftermath of the call, versus a 52-week range of $193.67 to $266.25. Investors should take note that the Credit Suisse target is the lowest on all of Wall Street, and the target is almost $100 lower than the consensus analyst price target of $266.25 and is almost half that of the highest price target of $320.00.
BlackBerry: Wrongly Valued and a Long Turnaround
BlackBerry Ltd. (NASDAQ: BBRY) is way beyond its days of being called CrackBerry. Now it is all but extinct in the smartphone market. Goldman Sachs initiated coverage with a Sell rating and an $8.50 target price on August 7. This implied 10% downside, but the valuation and turnaround don’t match up to BlackBerry’s new focus in advanced driver assisted systems software, which isn’t likely to ramp until 2019. BlackBerry shares had rallied about 37% so far in 2017 ahead of this call.
This was a $9.44 stock on the prior Friday, and shares slid to $9.10 after the call and were then down to $8.75 three days later. BlackBerry has a 52-week trading range of $6.65 to $11.74, and it has a consensus analyst target of $9.54.
Embraer: Trouble in Regional Jet Demand
Embraer S.A. (NYSE: ERJ) is a Brazilian commercial and private jet-maker with defense and security related operations to boot. It is a widely recognized player in the U.S. regional jet market. Goldman Sachs hit the panic button on August 10, slashing its rating to Sell from Buy and its target price to $18 from $26. Goldman Sachs noted weakness in regional jet orders and worries that Embraer’s earnings multiple could compress. The firm took off about one-fourth of its earnings expectations in 2018 and about one-third of its expected 2019 earnings expectations.
Embraer’s American depositary shares (ADSs) were down 2.8% at $20.80 in the immediate fallout after the call. The 52-week range is $17.06 to $24.95 and the prior consensus analyst target price was $24.40.
Integrated Device Technology: Can Semiconductor Stocks Not Run Forever?
Integrated Device Technology Inc. (NASDAQ: IDTI) has managed to remain independent in the world of semiconductors for more than two decades now. Merrill Lynch cut an unenthusiastic Neutral rating to Underperform with a $27 price objective back on August 1. The prior close was $26.14, but the shares of had fallen to under $24 late in the week of August 11. The firm noted sluggish organic growth of 5%, versus 10% for the sector, and it sees the bull thesis being on server product cycles and that it is already priced in now.
This is a $3.2 billion diversified semiconductor company with a 52-week share price range of $18.76 to $27.09. For whatever it is worth, there is a $29.23 consensus target price.