The S&P 500 is up 0.19% while the Dow index has surged up 0.31%. As the broader market booms, there are a few stocks that are lagging the market. Some of these stocks have a bearish outlook and the analysts are adjusting their ratings accordingly.
While the US economy seems comfortably on the path of recovery, certain sectors have more risks associated with them. In other cases, stocks receive a downgrade when they have already run up considerably and analysts do not see more upside despite better earnings and macroeconomic environment. For investors, it is vital to understand why stocks receive a downgrade so they can plan to shift their investments accordingly.
We looked at 5 stocks that analysts are bearish on. To come up with the list of 5 stocks that analysts are bearish on, we looked at stocks that recently received a downgrade and have a market cap of at least $1 billion.
5. NextEra Energy Partners (NYSE:NEP)
NextEra Energy has lost 6% in the last 5 days of trading because of doubts over its growth prospects. Analysts at BMO Capital downgraded the stock from Outperform to Market Perform and cut the stock’s price target to $18 from the previous price target of $26.
The company’s future prospects are clouded for multiple reasons. First, the possibility of the Fed pausing rate cuts is a big threat to NEP. The company’s market cap has shrunk to just 20% of where it was 2 years ago. Its overleveraged financial position continues to be a threat to the company.
However, investors are wondering if all the negatives are already priced in. Last month, J.P. Morgan published a report on the stock expressing how the firm’s strategic review could bring positive results and that the negatives associated with the company are over-discounted. Once the company gives an update on its strategic review, investors will get more clarity on the company’s future direction.
4. Las Vegas Sands (NYSE:LVS)
LVS stock had a difficult December but even that pales in comparison to its YTD returns of -12.38%. Morgan Stanley made matters worse when it downgraded the company’s shares from Overweight to Equal-weight. The investment bank believes all the upside is already priced in, highlighting 5 years of stock volatility where the stock hasn’t really broken away in either direction.
J.P. Morgan analyst Stephen Grambling believes the company’s Macau operations are being overestimated and has estimated its growth below what other analysts on Wall Street are predicting. He cites the deflation and housing crisis in China as the main reason for this pessimism, but the possibility of a US-China trade war is also a threat.
Once the company’s renovation works at the Londoner and Venetian arena are complete, it will be able to focus on its business better. However, as far as the stock is concerned, even the positive developments associated with this are priced in according to analysts.
3. BCE Inc. (NYSE:BCE)
BCE Inc. has struggled over the past year. The stock is down 47% so a downgrade by Bank of America, which lowered its Neutral rating to Underperform on the stock, doesn’t cause much more of a headache for investors. The reasons for the downgrade should worry investors though.
BofA sees growth headwinds for the stock. It is true that the industry peers also don’t have a favorable outlook but the concerns regarding BCE are much more pronounced. The firm’s dividend is in danger and there is high leverage that the company management is finding hard to tackle. BCE has a solid history of growth and that’s one reason why investors have preferred the stock in the past. However, the current dividend yield of over 13% isn’t sustainable and a dividend cut would spook investors. In such a scenario, an upside is unlikely to play out, even though the stock still has a price target of $36, a 55% upside from current levels.
2. AppFolio Inc (NASDAQ:APPF)
The APPF stock continues to decline amid management’s lower 2025 growth expectations. According to analyst Jason Celino, this year will be a transitional period as the company exhibits disappointing performance metrics and struggles with leadership restructuring. Considering this, KeyCorp lowered shares of AppFolio to a sector weight from an overweight rating.
Despite AppFolio’s strong financial performance during the last twelve months, many other research analysts also view APPF as a weak stock, reducing the target price by a solid $62, from $193 to $255. The cloud-based platform bid farewell to its CFO, Fay Sien Goon, with rising transitional setbacks influencing the company’s financial strategy and market performance.
But at the same time, the company’s efforts to integrate AI to streamline the work process and collaborate with industry giants like Amazon ensure that the management is undertaking developments to combat the challenges. While collaboration with DocuSign made contract management easy through electronic signatures, the partnership with AvidXchange has enhanced the efficiency of invoice and payment systems. This means that with the stability of the management, the company can fully utilize its contracts.
1. Fortinet (NASDAQ:FTNT)
Fortinet is a cybersecurity company that is unlikely to lose relevance at a time when cyber attacks are becoming a norm. However, cybersecurity spending is suffering because of the way AI and automation are helping people make their systems more secure.
The fundamental problem with Fortinet is that a significant customer base of the company will reach the end of support by the next year. Analysts believe that this close to expiry, companies depict a certain growth which is lacking at Fortinet. Moreover, the stock ran up over 80% in a matter of 5 months which means whatever limited growth prospects the stock has at this point are most probably priced in.
All’s not lost for investors though as Piper Sandler upgraded the stock to Overweight just last week. The firm’s analysts believe that despite a surge in AI spending, cybersecurity is still a top priority for IT companies, and spending intentions in the sector have improved.
Fortinet is not on our latest list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 47 hedge fund portfolios held FTNT at the end of the third quarter which was 42 in the previous quarter. While we acknowledge the potential of FTNT as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as FTNT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
