Analysts have by-and-large refused to downgrade stocks despite a financial climate that seems on the verge of a double-dip recession.
Given the heavy fluctuations in the stock market, it might be expected of analysts to lower their positions accordingly. Yet analysts don't seem to buy into doomsday forecasts.
Robert Powell of MarketWatch explains: "None of the 1,485 stocks that make up the S&P 1,500 has a consensus 'Sell' rating. And just five, or 0.3%, are ranked as being a 'Weak Hold' ... Just 79 (or 5%) of the 1485 stocks have consensus 'Buy' recommendations, while 1,003 (68%) are ranked 'Buy/Hold,' 398 (27%) are ranked 'Hold.'"
Reactions are mixed, but they mostly lean toward the "glass is half full" mentality. Indeed, any outright cynicism is hard to find in spite of numerous market indicators such as the drop in consumer spending, consumer confidence, and stagnant unemployment that suggest tough days ahead. This leads some to wonder if the hesitation to downgrade undermines the validity of ratings.
Powell takes data from an analysis published by Sam Stovel, chief investment strategist of Standard & Poor's Equity Research. In that analysis, Stovel concludes that analysts are hesitant to take a "sell" stand because "if stocks for the long run are on an upward trajectory, then everything is a hold," meaning a sell today might be regretted in the long run.
Stovall says it "appears as if most analysts are not expecting the U.S. to fall back into recession, and that now is the time to scoop up undervalued cyclical issues at bargain-basement prices." (via MarketWatch)
Some other findings in Stovel's analysis: The most-loved industries according to analyst ratings include energy, industrials, and information tech. The least-loved are consumer staples, financials, and utilities.
Are analysts right to act this way? Do analysts think the possibility of a second severe recession is hogwash? Or perhaps they simply hold out hope, believing if they wish for a rebound hard enough, it just might come true.
In light of this optimism, we were interested in finding stocks that analysts are bullish about, yet are receiving negative attention from short-sellers. After all, analysts are more interested in seeing stock prices rise while short-sellers have interest in their drops.
To create our list we used analyst ratings from Reuters that are presented on a linear scale (with 1 = "Strong Buy" and 5 = "Strong Sell"). We took the names with "strong buy" ratings and searched among them for those experiencing significant levels of short-selling.
Our top 10, sorted by analyst rating, are listed below. (Click here to access free, interactive tools to analyze these ideas.)
1. Abraxas Petroleum
2. The Active Network Nasdaq: ACTV): Offers application services technology and marketing access to community service and participatory sports organizations. Average analyst recommendation score at 1.2. Shares shorted have increased from 1.04M to 1.52M over the last month, an increase which represents about 2.04% of the company's float of 23.54M shares.
3. Caribou Coffee
4. Optimer Pharmaceuticals
5. The Spectranetics Corporation
6. TTM Technologies
7. Wabash National
9. AVEO Pharmaceuticals
10. China New Borun
List compiled by Eben Esterhuizen, CFA.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Becca Lipman and Eben Esterhuizen do not own any of the shares mentioned above. Analyst data sourced from Reuters, Short seller data sourced from Fidelity.
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