Indicator of the Week: Are Analysts Too Bearish on These 25 Stocks?

Analysts' ratings have grown more bearish toward stocks despite the SPX's long-term uptrend

Senior Quantitative Analyst
Mar 30, 2016 at 7:15 AM
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We get buy/hold/sell data from Zacks. That is, analysts who cover individual stocks give a conclusion to buy, hold, or sell the stock depending on whether they think the stock is a good buy or bad buy at its current price. I aggregated this data for all stocks in the S&P 500 Index (SPX), going back to 1996. As you can see, at the height of the tech bubble, more than 70% of the recommendations by analysts were "buys." They were essentially saying to buy any stock and you can expect to make money. Since then, the percentage of "buys" has stayed at a more reasonable level, but I still find the data quite interesting.


Analysts More Bearish Since 2012: The chart below zooms in on the data above. It shows the percentage of "buys" rose above 50% as the market rebounded from the financial crisis. Interestingly, it topped out in late 2011 and has fallen since then from just over 58% to its current level of 52%. During this period, the S&P 500 Index has returned an impressive 12% per year. The market has moved higher, but analysts have become more bearish. The contrarian in me likes this development.


This next chart shows that the percentage of "sell" recommendations has spiked recently to its highest level in over six years. The most bearish recommendation an analyst can give on a stock has hit its highest level since 2010. Again, as a contrarian, I see this having bullish implications.


Individual Stocks: Finally, here is a list of the top 25 SPX stocks (by return) that have moved higher since 2012, yet analysts continue to be pessimistic toward them. Specifically, the list includes stocks with at least 10 covering analysts, which have outperformed the S&P 500 since 2012, but where the percentage of "buys" has fallen and is below 50%. I wouldn't suggest buying a stock based on just one indicator, but this might be a list worthy of more evaluation. A continuation of the stock performance could force the analysts to capitulate and cause a bonanza of upgrades, fueling more stock gains.



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