3 companies analysts recommend avoiding
Not every well-known stock is a buy according to Wall Street. For three major US companies, the analyst consensus currently stands at “sell.” The reasons differ significantly for each. From a cooling US housing market to capital outflows from actively managed funds to a scandal at a Japanese subsidiary. Which three companies is Wall Street currently looking down on, and what exactly is behind it?
Key points
The second-largest US homebuilder has the worst consensus of the trio according to aggregators. More than half of analysts recommend selling the stock, and quarterly earnings per share fell more than 30% year-over-year.
An asset manager with $1.89 trillion under management is battling persistent capital outflows from mutual funds. After a strong run in recent weeks, the stock is trading well above analysts’ average price target.
The insurance giant is grappling with a suspension of new policy sales in Japan due to embezzlement of client funds by employees. Remediation costs are set to exceed half a billion dollars this year.
At the same time, all three companies offer a dividend, and two of them are long-time dividend payers with yields around 5%.
Analyst recommendations are not infallible and blindly following them may not pay off. Still, when a large, well-known company has zero buy ratings, a significant share of “sell” ratings, and price targets below the current market price, it is a signal that an investor should not ignore. That is precisely the situation today for three companies that are otherwise established names in the US market.
Each of these firms fell out of favor with analysts for a completely different reason. For one, it is a classic cyclical problem, as the US housing market is going through its weakest period in years. For another, the reason is structural and linked to the long-term shift of capital from actively managed funds to cheaper passive products. And for the last of today’s selection, analysts’ caution stems from a one-off but very serious problem in the form of a scandal and the suspension of new policy sales in Japan.
Lennar $LEN
Lennar is the second-largest publicly traded homebuilder in the United States, right behind rival D.R. Horton $DHI. Founded in 1954, the company operates in 26 states and focuses primarily on first-time homebuyers, the segment most sensitive to mortgage rates and housing affordability. And that is its biggest problem in the current environment.
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