In this article, we will discuss the 5 dividend paying stocks you should avoid according to Morgan Stanley’s quant screen. If you want to read about similar stocks, you can go to 10 Dividend Paying Stocks You Should Avoid According to Morgan Stanley’s Quant Screen.
5. Sonic Automotive Inc. (NYSE:SAH)
Dividend Yield as of September 27: 2.29%
Total Expected Return: -40%
Number of Hedge Fund Holders: 20
Sonic Automotive, Inc. (NYSE:SAH) is an American automotive retailer. The company operates through two segments: Franchised Dealerships and EchoPark. As of September 27, Sonic Automotive Inc. (NYSE:SAH) has declined 8.43% year to date, and Morgan Stanley expects the stock to shed an additional 40% over the next couple of quarters.
On September 9, BofA analyst John Murphy double downgraded Sonic Automotive Inc. (NYSE:SAH) to Underperform from Buy and slashed his price target to $71 from $82. The analyst noted that he sees a high probability of supply chain issues negatively impacting auto volumes into 2023. As of September 27, the stock is offering a forward dividend yield of 2.29% and has free cash flows of $353 million.
At the end of Q2 2022, 20 hedge funds held stakes in Sonic Automotive Inc. (NYSE:SAH). The total value of these stakes amounted to $92 million, down from $100 million in Q1 2022 with 23 positions. As of June 30, Teewinot Capital Advisers is the top shareholder in the company with stakes worth $21 million.
4. Penske Automotive Group, Inc. (NYSE:PAG)
Dividend Yield as of September 27: 1.95%
Total Expected Return: -22%
Number of Hedge Fund Holders: 22
Penske Automotive Group, Inc. (NYSE:PAG) is a leading automotive retailer in the United States. The company has four business divisions: Retail Automotive, Retail Commercial Truck, Other, and Non-Automotive Investments. As of September 27, the stock is offering a forward dividend yield of 1.95% and has free cash flows of $959 million.
On July 14, Morgan Stanley analyst Adam Jonas cut his price target on Penske Automotive Group, Inc. (NYSE:PAG) to $93 from $95 and reiterated an Underweight rating on the shares. As of September 27, Penske Automotive Group, Inc. (NYSE:PAG) has lost 4.55% year to date, and Morgan Stanley analysts expect the stock to decline by an additional 22% moving into 2023.
At the close of Q2 2022. 22 hedge funds were long Penske Automotive Group, Inc. (NYSE:PAG) and held stakes worth $235.6 million in the company. As of June 30, AQR Capital Management is the top shareholder in the company and owns roughly 0.6 million shares.
3. Group 1 Automotive, Inc. (NYSE:GPI)
Dividend Yield as of September 27: 1.03%
Total Expected Return: -23%
Number of Hedge Fund Holders: 24
Group 1 Automotive, Inc. (NYSE:GPI) sells new and used cars, light trucks, and vehicle parts, in the United States and the United Kingdom. On September 9, BofA analyst John Murphy slashed his price target on Group 1 Automotive, Inc. (NYSE:GPI) to $358 from $375 but maintained a Buy rating on the shares. This July, Morgan Stanley analyst Adam Jonas cut his price target on Group 1 Automotive Inc. (NYSE:GPI) to $142 from $160 and reiterated a sell-side Underweight rating on the shares.
As of September 27, Group 1 Automotive, Inc. (NYSE:GPI) has tumbled 21.40% year to date and is offering a forward dividend yield of 1.03%. Morgan Stanley sees the stock losing an additional 23% over the next couple of months. Group 1 Automotive, Inc. (NYSE:GPI) has free cash flows of $724.9 million as of September 27.
Insider Monkey spotted Group 1 Automotive, Inc. (NYSE:GPI) on 24 investment portfolios at the close of Q2 2022. The total stakes of these hedge funds amounted to $195 million. As of June 30, Lakewood Capital Management is the leading shareholder in the company with stakes worth $55 million.
2. FactSet Research Systems Inc. (NYSE:FDS)
Dividend Yield as of September 27: 0.91%
Total Expected Return: -23%
Number of Hedge Fund Holders: 30
On September 22, FactSet Research Systems Inc. (NYSE:FDS) announced earnings for the fourth quarter of fiscal 2022. The company reported earnings per share of $3.13 and missed expectations by $0.08. The company generated a revenue of $499.3 million and outperformed consensus by $11.35 million. As of September 27, FactSet Research Systems Inc. (NYSE:FDS) has lost 18% year to date, and Morgan Stanley’s quant screen shows the stock can decline a further 23% in the coming months.
This September, Stifel analyst Shlomo Rosenbaum reiterated a Hold rating and his $415 price target on FactSet Research Systems Inc. (NYSE:FDS). On September 23, Deutsche Bank analyst Faiza Alwy slashed her price target on FactSet Research Systems Inc. (NYSE:FDS) to $483 from $507 and maintained a Buy rating on the shares.
As of September 27, FactSet Research Systems Inc. (NYSE:FDS) is offering a forward dividend yield of 0.91% and has free cash flows of $487 million.
At the close of Q2 2022, 30 hedge funds disclosed ownership of stakes in FactSet Research Systems Inc. (NYSE:FDS). These funds held collective stakes of $399 million in the company. This is compared to 34 positions in the previous quarter with stakes worth $544 million.
As of June 30, Echo Street Capital Management is the largest shareholder in FactSet Research Systems Inc. (NYSE:FDS) with stakes worth $144 million.
Here is what Baron Funds had to say about FactSet Research Systems Inc. (NYSE:FDS) in its second-quarter 2022 investor letter:
“The businesses in which we have invested have generally continued to report robust financial results despite elevated public attention on the risks of a slowdown. In June, market data vendor FactSet Research Systems Inc. (NYSE:FDS) reported an acceleration in its organic growth rate to 10.1%, its fastest rate of organic growth in a decade. FactSet is reaping the benefits of a multi-year investment cycle and unwavering focus on customer service to bring new products to market, consolidate spending from competitors, and realize price increases.”
1. Lithia Motors, Inc. (NYSE:LAD)
Dividend Yield as of September 27: 0.73%
Total Expected Return: -20%
Number of Hedge Fund Holders: 40
Lithia Motors, Inc. (NYSE:LAD) is a leading American retailer of automobiles and auto parts. The company operates through three segments: Domestic, Import, and Luxury. As of September 27, Lithia Motors, Inc. (NYSE:LAD) has lost 24.15% of its value year to date, and Morgan Stanley see an additional 20% downside to the stock moving ahead.
On July 14, Morgan Stanley analyst Adam Jonas slashed his price target on Lithia Motors, Inc. (NYSE:LAD) to $220 from $260 and maintained a sell-side Underweight rating on the shares. On September 9, BofA analyst John Murphy lowered his price target on Lithia Motors, Inc. (NYSE:LAD) to $470 from $565 and reiterated a Buy rating on the shares. As of September 27, the stock is offering a forward dividend yield of 0.73% and has negative free cash flows of $20.9 million.
Insider Monkey identified 40 hedge funds that held stakes in Lithia Motors, Inc. (NYSE:LAD) at the end of the second quarter of 2022. The total value of these stakes amounted to $2.01 billion, down from $2.55 billion a quarter ago with 46 positions. The hedge fund sentiment for the stock is negative.
As of June 30, Abrams Capital Management owns more than 2.3 million shares of Lithia Motors, Inc. (NYSE:LAD) and is the largest shareholder in the company. The investment covers 17.36% of David Abrams’ 13F portfolio.
Here is what Oakmark Funds had to say about Lithia Motors, Inc. (NYSE:LAD) in its first-quarter 2022 investor letter:
“As is typical during periods of significant volatility, we added a new name to the portfolio. Lithia Motors (NYSE:LAD) is the largest franchised auto dealer group in the United States. The company has a long history of creating shareholder value through best-in-class operations and consistent acquisitions of smaller dealers at attractive returns. There is a long runway for management to continue creating value through such acquisitions. Management believes this will drive earnings per share to more than $50 by 2025, even as car prices return to pre-pandemic levels. Meanwhile, Lithia has a significant opportunity to further accelerate growth through Driveway, its online auto retailing platform. We believe Lithia’s existing nationwide infrastructure provides Driveway with significant competitive advantages in e-commerce, which smaller dealers will struggle to replicate. Driveway is not generating any earnings today, but it could become a major contributor over the next five to seven years. With the stock priced at less than 7x management’s 2025 EPS target and with substantial future growth potential from Driveway, we believe Lithia shares are a bargain today.”
You can also take a look at 10 Dividend Stocks With Over 7% Yield and 10 Best Dividend Stocks to Buy in 2022.
