Wall Street analysts are usually a pretty optimistic bunch. So when they adamantly tell you to sell some S&P 500 stocks, that’s saying something.
More analysts recommended selling 10 more stocks than anyone else in the S&P 500, inclusive Pinnacle West Capital (PNW), Consolidated Edison (ED) and Franklin Resources (BEN) says data from FactSet. It’s just the latest sign of heightened caution on Wall Street after more than nine months of selling.
“Analysts have been more bearish on their revisions to third-quarter earnings estimates for S&P 500 companies
compared to recent quarters, while companies were slightly less pessimistic on their third quarter earnings outlook
quarter compared to recent quarters,” said John Butters, earnings analyst at FactSet.
S&P 500 Analyst (slowly) turning cautious
Concern is only slowly creeping into analysts’ opinions. Analysts give just 5.7% of stocks a “sell” rating, says FactSet’s John Butters. That’s actually less than the 6% of ratings that have sold on average over the past five years. But if you take a closer look, you can see that optimism is fading somewhat. Less than 56% of stock ratings are now a Buy, down slightly from the February peak of 57.4%.
Why the concern? Watching the S&P 500 fall nearly 20% this year doesn’t help. Neither does the growing concern about the shape of corporate profits. Analysts expect S&P 500 earnings to rise just 3.5% in the third quarter, Butters says. If that’s the final figure, that would be the lowest quarterly growth rate since the third quarter of 2020.
Now you can see why some analysts might want to avoid some S&P 500 stocks.
More than half of analysts say they will sell Pinnacle West and Consolidated Edison
Sales reviews are rare. Even rarer are companies where more than half of the reviews are a sale.
But that’s the case with two S&P 500 utilities: Pinnacle West and Consolidated Edison. Parting with these companies is a difficult decision. They’re one of only a handful of stocks to actually rise this year. Pinnacle West, which generates electricity primarily in Arizona, is up more than 4% this year on top of a 4.6% return. And East Coast energy company Consolidated Edison is up even more, up 14.4% this year, adding icing on the cake to a dividend yield of 3.2%, says S&P Global Market Intelligence.
And yet the analysts are so close that they are slapping the exit table on investors. 63 percent of analyst ratings for both stocks are a sell. Surely the rating has something to do with it. Consolidated now trades at nearly 22 times its trailing 12-month earnings. That’s quite a lot for a company that’s only projected to grow 3% annually over the long term.
downward spiral? Sell the money managers
When analysts are bearish on utilities, it is largely a valuation decision. But when giant companies that invest in stocks on behalf of investors turn negative, that’s more of a sign for the markets.
More than 40% of the reviews go to asset manager Franklin Resources and 38% T Rowe Price (TROW) are sold. This is an important decision as both companies’ profits will fall when the market falls. Both are trimming investors’ portfolios, and as portfolios fall in value, money managers’ revenues fall as well.
Accordingly, the shares of both asset managers suffered this year. Franklin is down 28% and shares of T. Rowe Price are down more than 40%. And there are enduring fundamental reasons driving the decline. T. Rowe’s adjusted earnings are expected to fall more than 30% this year. And its projected 2026 earnings of $10.68 per share are more than 16% below what the company earned in 2021.
Analysts are not always right. But they’re rarely that declining, and you’ve been warned.
S&P 500 stocks with the highest percentage of sell ratings
|company||symbol||% of reviews “sell”||Share YTD % ch.||sector|
|Pinnacle West Capital||(PNW)||63%||4.2%||Utilities|
|Lumen Technologies||(LUMN)||46||-30.0||communication services|
|Robert Half International||(RHI)||43||-31.4||Industry|
|T Rowe Price||(TROW)||38||-44.5||finance|
|Church & Dwight||(CHD)||36||-25.2||consumer goods|
|JM Smucker||(SJM)||29||2.6||consumer goods|
Sources: IBD, FactSet, S&P Global Market Intelligence