Wall Street analysts rarely tell investors to sell S&P 500 stocks — especially when they're falling like now. So when they issue a warning, it pays to listen.
Eleven stocks in the S&P 500, including asset manager Franklin Resources, shipping firm Expeditors International and consumer staple Clorox, carry the highest percentage of sell and similar "underperform" ratings from analysts — at least 28%, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
Such a warning comes at a time the S&P 500 is slipping fast: down more than 6% since August. Investors are scrambling to cling onto what's left of the S&P 500's 12% gain this year. The Dow Jones Industrial Average has already seen nearly all its gains this year evaporate.
Many investors are simply buying bonds yielding roughly 5% versus taking chances with stocks. That could continue, making it all the more important to own the right stocks. "Good news about the economy means corporate America is going to have to deal with higher interest rates for the rest of this year and probably most of 2024," said Edward Moya of Oanda.
Bracing For S&P 500 Turbulence
Seeing a high proportion of sell ratings on a few individual stocks should catch your attention. Less than 5% of Wall Street analysts' ratings on S&P 500 stocks are sells.
Why such pessimism in some stocks? S&P 500 investors are preparing for a not-so-hot third-quarter earnings season.
Analysts think S&P 500 profit will sink 0.3% during the quarter, says John Butters of FactSet. And if they're right, it would mark the "fourth straight quarter of (year-over-year) earnings declines reported by the index."
Additionally, the threat of "higher for longer" bond yields means stocks will need to compete with income investments. That competition is already a big reason the S&P 500 skidded in September.
So avoiding big stock losses will be key.
Analysts' Most Avoided S&P 500 Stock: Franklin Resources
Long-term investors who buy mutual funds know to hang on. But analysts think investors owning shares of Franklin Resources, a mutual fund provider, should sell now.
Half the 12 analysts ratings on the stock are a "sell" or underperform. That's the highest percentage of pessimism for an S&P 500 stock measured this way. And it's not because analysts don't like mutual funds. It's that its business' fundamentals are shrinking.
Analysts think Franklin's adjusted profit per share will drop more than 34% in 2023 to $2.37 a share. And don't expect a big bounce back either. Analysts are forecasting the mutual fund company's 2024 profit will only inch up 6.7% to $2.53. And even if that happens, that means the company's profit in 2024 will be nearly a third less than it was in 2022.
Interestingly, analysts don't think the stock will necessarily plummet. The average price target for 12 months from now is up 8.1% from the current stock price. But they do think it will be a laggard. The average 12-month price target on S&P 500 stocks indicates a 22% rally in 12 months.
Analysts, in a way, are more negative on Expeditors International, a shipping company. No less than 47% of analysts rate the stock a sell. Additionally, analysts think the stock will be nearly 7% lower in a year than it is now. Again, fundamentals don't look good. Analysts think the company's adjusted profit per share will fall more than 36% in 2023.
Caution In Consumer Staples
You might expect analysts to be negative on former Meme stocks like Hollywood studio Paramount Global due to their volatility. But on Clorox, a low-key maker of cleaning supplies?
Nonetheless, nearly 37% of analysts for the stock rate Clorox a sell. But that's largely because the consumer staples stock isn't delivering what investors expect from it: slow-and-steady growth. Analysts think Clorox's adjusted earnings per share will fall nearly 2.5% in the fiscal year ending in June 2024.
Again, it goes without saying that analysts aren't always right about S&P 500 stocks. And they're often wrong. But with that said, the analysts are taking great pains to flag investors away from certain stocks.
Sell These S&P 500 Stocks!
Stocks with highest percentage of sell ratings by analysts
| Company | Ticker | Buy | Hold | Sell | Sector |
|---|---|---|---|---|---|
| Franklin Resources | 0.0% | 50.0% | 50.0% | Financials | |
| Expeditors International of Washington | 0.0 | 52.6 | 47.4 | Industrials | |
| T. Rowe Price Group | 0.0 | 53.8 | 46.2 | Financials | |
| Robert Half | 0.0 | 33.3 | 40.0 | Industrials | |
| Paramount Global | 0.0 | 35.5 | 38.7 | Communication Services | |
| Clorox | 0.0 | 47.4 | 36.8 | Consumer Staples | |
| Principal Financial | 0.0 | 64.3 | 35.7 | Financials | |
| Consolidated Edison | 0.0 | 47.1 | 35.3 | Utilities | |
| Whirlpool | 0.0 | 50.0 | 30.0 | Consumer Discretionary | |
| Amcor | 0.0 | 57.1 | 28.6 | Materials | |
| Illinois Tool Works | 0.0 | 61.9 | 28.6 | Industrials |
