Indicator of the Week: Do These 13 Stocks Deserve Analysts' Acclaim?

The number of "buy" ratings handed out by analysts has fallen over the last five years

Senior Quantitative Analyst
Oct 12, 2016 at 5:42 AM
facebook X logo linkedin


As part of our sentiment analysis on stocks -- one segment of our Expectational Analysis® methodology -- we look at data from Zacks, which tracks how analysts rate individual stocks. The data shows the number of analysts that have a "buy," "hold," or "sell" recommendation on a certain stock. From this, I add up the data for all stocks to see the percentage of total "buy" recommendations.

Analyst recommendations typically move with the market. However, over the past five years, analysts have been giving out fewer and fewer "buy" ratings, even as the S&P 500 Index (SPX) has moved higher. Since October 2011, the SPX has had an annualized return of over 13%, but the percentage of "buy" recommendations on stocks has fallen to 48% from 56% over the same period, marking the lowest percentage since the beginning of 2010. As contrarians, we see this skepticism in the rally as a reason to be bullish. This week, I'll break down the data somewhat more, to see where the skepticism is coming from.  

SPX and percent buys Oct 11

Sector View: We group stocks into just over 40 sectors (which we get from Investors Intelligence), and out of those, there are only four sectors where analysts are more bullish now than they were five years ago, based on the percentage of "buy" recommendations. The table below shows sectors where analysts have become more bullish, or haven't changed much (less than 3%), over the past five years. 

IOTW 1

This next table examines stocks from the "Energy Other," "Buildings," and "Semiconductors" sectors -- specifically, stocks that have seen their percentage of "buy" ratings increase by at least 10% over the past five years. These stocks have contributed most to those sectors' percentage of overall "buys." The increase in the percentage of "buy" opinions is particularly interesting on SunPower Corporation (NASDAQ:SPWR) and Advanced Micro Devices, Inc. (NASDAQ:AMD), as these stocks have underperformed the SPX, but analysts like them better now than five years ago.  

More bullish stocks Oct 11

Next, here are sectors where analysts have become much more bearish. The second table below shows some specific stocks from the top five sectors where analysts decreased their "buy" opinions. It's not surprising to see a lot of oil-related stocks, as that sector has been hit extremely hard over the past five years. Of all the stocks called out below, only IDEX Corporation (NYSE:IEX) -- from the "Machinery Tools" sector -- has outperformed the market over the past five years. 

IOTW

More bearish stocks Oct 11

Market Cap: Finally, I wondered how analysts divvied up their "buy" recommendations based on market cap, and if there was any change from five years ago to the present. I broke stocks up into five brackets based on market cap. (Each bracket has an equal number of stocks.) In the chart below, Group 1 is made up of small-cap stocks and Group 5 is composed of the largest companies by market cap.

According to this, analysts generally favor large-cap companies, as that bracket has the highest percentage of "buy" recommendations. Currently, it's the only bracket where over half of the analysts hold a "buy" rating. The trend doesn't look to have changed much from five years ago, either. The line for 2011 data was basically just shifted down roughly the same amount for each bracket to get the current line, with the only exception being a slightly larger drop in "buy" opinions for Group 2. 

Percent buys by market cap Oct 11


Sign up now for a trial subscription of Schaeffer's Expiration Week Countdown! We'll send you 5 trades for expiration week, each targeting double- or triple-your-money gains in less than 5 days.

 

Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on C3.ai calls
238.5% GAIN on Oracle calls

 
 
 


 
 

Rainmaker Ads CGI