In this article, we will discuss the 10 stocks recently downgraded by analysts. If you want to see more such stocks on the list, you can directly visit Analysts Are Downgrading These 5 Stocks.
Market analysts assess market breadth, which examines whether a market movement is supported by a wide range of stocks or a few dominant ones. Despite the S&P 500 Index’s recent rally, market breadth has been narrow for the past three months, driven mainly by a limited number of large-cap stocks in the Information Technology and Communication Services sectors. Traders are concerned about the lack of broader participation, suggesting potential unsustainability in the market’s upward momentum. Surprisingly, investors betting against stocks based on weak breadth have not fared well despite deteriorating fundamentals. A comparison between the traditional S&P 500 Index and the equal-weighted S&P 500 Index reveals differences in weighting. According to Wells Fargo Advisors, the traditional index is influenced by high-valued companies due to market capitalization, while the equal-weighted index assigns equal weight to all stocks. In an ideal bull market, the equal-weighted index would keep pace with or outperform the traditional index, indicating broad participation. However, the recent rally saw the equal-weighted S&P 500 rise only 2.4% compared to the traditional index’s 10.8% increase since March 10, suggesting a narrow set of driving stocks. Further evidence of a narrow market is seen in the S&P 100 (OEX) outperformance, representing the 100 largest-capitalization stocks, which has risen 14.8% compared to the 10.8% increase in the broader SPX since March 10.
The bond market is making significant changes to its predictions regarding the future direction of US interest rates just ahead of the conclusion of the Federal Reserve’s crucial monetary-policy meeting. According to Bloomberg, yields on short-term Treasury notes, on June 13, have risen to their highest level since March as expectations diminish regarding the central bank’s likelihood of reducing rates this year. This shift in sentiment follows the release of data showing consumer price increases in the previous month aligning with expectations.
Amid the Federal Reserve’s series of interest-rate hikes, Chinese investors are increasingly directing their funds toward overseas assets, reported Bloomberg. This trend is driven by the attractiveness of dollar deposits and bonds, creating additional pressure on the already declining domestic stock market. The outflow of capital from China has been on the rise this year, facilitated through two major channels that enable investors to purchase assets abroad through licensed institutions. This surge in demand is placing strain on regulatory quotas as local firms and onshore branches of global financial giants, including JPMorgan Chase & Co. and BlackRock Inc., compete to meet the growing investment appetite.
On June 14, oil prices increased for a second consecutive session due to the positive impact of China’s new crude import quotas, which alleviated concerns about demand. Benchmark Brent crude surpassed $75 per barrel, while West Texas Intermediate reached $70 per barrel. The significant increase in Chinese quotas contributed to a more optimistic outlook for oil consumption in the world’s second-largest economy. This development comes after reports that Beijing is considering various measures to stimulate its sluggish economic recovery.
On the stock market front, a multinational manufacturer and marketer of beauty and skincare products The Estée Lauder Companies Inc. (NYSE:EL), financial services firm Wells Fargo & Company (NYSE:WFC), and tech giant Apple Inc. (NASDAQ:AAPL) came into the spotlight after receiving rating-downgrades from analysts. The downgrade for The Estée Lauder Companies Inc. (NYSE:EL) is a result of several factors, including the company’s report in early May, recent developments in the consumer and beauty sectors, and a decline in the company’s stock price. At the same time, the reason behind the downgrade of Apple Inc. (NASDAQ:AAPL) is the recent announcement of its forthcoming augmented reality/virtual reality (AR/VR) headset called Vision Pro. The analyst believes that the positive impact of the AR/VR product launch is already factored into the share price of Apple Inc. (NASDAQ:AAPL), leading to the downgrade. Check out the complete article below to see specific details behind the updated ratings for these stocks.
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10. AMC Networks Inc. (NASDAQ:AMCX)
Number of Hedge Fund Holders: 17
AMC Networks Inc. (NASDAQ:AMCX) is an American entertainment company that operates several television channels and streaming platforms. AMC Networks Inc. (NASDAQ:AMCX) owns and operates several popular television channels, including AMC, BBC America, IFC, SundanceTV, and WE tv. These channels offer a variety of content, including news, movies, TV shows, and original series.
On June 6, AMC Networks Inc. (NASDAQ:AMCX) was downgraded by Morgan Stanley analyst Thomas Yeh from Equal Weight to Underweight, with a lowered price target of $12 compared to the previous $19. The analyst believes that the increasing trend of cord-cutting poses additional risks for the company’s shares. In a research note to investors, the analyst explains that the migration of sports content away from traditional bundled packages could accelerate cord-cutting in the medium term. As a result, the firm downgraded AMC Networks Inc. (NASDAQ:AMCX) due to its exposure to these ongoing challenges in the industry.
ClearBridge Investments, an investment management firm, mentioned AMC Networks Inc. (NASDAQ:AMCX) in its first-quarter 2021 investor letter. Here’s what the firm said:
“Media has been another bright spot for the Strategy, boosted by the return of live events and subsequent rebound in advertising as well as good initial traction for several of our companies new streaming services. AMC Networks has seen strong initial subscriber growth to their over-the-top services.”
9. Amedisys, Inc. (NASDAQ:AMED)
Number of Hedge Fund Holders: 20
Amedisys, Inc. (NASDAQ:AMED) is a healthcare company based in Louisiana that has a workforce of 21,000 individuals. Their range of services includes skilled nursing, physical therapy, home aides, and hospice care. Amedisys, Inc. (NASDAQ:AMED) owns around 500 facilities spread across 38 states in the United States. In December 2022, Amedisys, Inc. (NASDAQ:AMED) received recognition as one of the “Best Places to Work in IT” by Foundry’s Computerworld. During the same month, Amedisys, Inc. (NASDAQ:AMED) successfully established a joint venture with the University of Arkansas for Medical Sciences. The collaboration aimed to offer home health services in Searcy and Little Rock.
Amedisys, Inc. (NASDAQ:AMED) has been downgraded by Credit Suisse from Outperform to Neutral, along with a reduced price target of $100 compared to the previous $115. The downgrade comes after the company received an unsolicited proposal from Optum, a subsidiary of UnitedHealth (UNH), to acquire all outstanding shares of Amedisys common stock for $100 per share in cash. The Amedisys board assessed the proposal and determined that it could potentially lead to a superior offer, as defined in the merger agreement with Option Care Health (OPCH). According to the analyst’s research note issued on June 6, with competing offers, Amedisys is expected to be influenced more by deal arbitrage considerations rather than its fundamental performance.
8. Cabot Corporation (NYSE:CBT)
Number of Hedge Fund Holders: 22
Cabot Corporation (NYSE:CBT) is a company that specializes in producing specialty chemicals and performance materials. Among its product offerings are reinforcing carbons, which are used in the manufacturing of tires, as well as other products like hoses, belts, and molded goods.
JPMorgan analyst Jeffrey Zekauskas has downgraded Cabot Corporation (NYSE:CBT) to Neutral from Overweight and set a price target of $80, reduced from $87. The analyst believes there may be better opportunities to purchase Cabot Corporation (NYSE:CBT) shares at more favorable prices in the coming months. Zekauskas highlights the weakening domestic economy, sluggish economic growth in China, and slow expansion in Europe as contributing factors. The firm also mentions that under recessionary conditions, there is a potential for significant contraction in carbon black demand as tire customers reduce their inventories. Additionally, the note points out that Cabot Corporation (NYSE:CBT) shares have historically performed poorly during recessions, including the downturns in 2020 and 2009.
7. American Electric Power Company, Inc. (NASDAQ:AEP)
Number of Hedge Fund Holders: 34
American Electric Power Company, Inc. (NASDAQ:AEP) is a publicly traded holding company that operates as a utility provider. Its primary activities involve generating, transmitting, and distributing electricity to both retail and wholesale customers throughout the United States. The company utilizes a diverse range of energy sources, including coal, natural gas, renewables (such as solar and wind), nuclear, hydro, and others, to generate the electricity it supplies. In addition to supplying electricity, American Electric Power Company, Inc. (NASDAQ:AEP) also engages in wholesale electricity marketing, catering to utilities, cooperatives, municipalities, and other participants in the market.
The company has recently reiterated its guidance for 2023 non-GAAP operating earnings. The projected range is between $5.19 and $5.39 per share, while the consensus estimate stands at $5.29 per share. This suggests a long-term growth rate of 6% to 7%. Furthermore, American Electric Power Company, Inc. (NASDAQ:AEP) surpassed expectations for both revenue and earnings in the fourth quarter.
UBS, however, revised its rating on American Electric Power Company, Inc. (NASDAQ:AEP) on June 6 from Buy to Neutral and set a new price target of $92, reduced from $105. According to the analyst, although the company still has the potential to carry out its growth strategy, the timeline for achieving it has been extended. In order for the stock’s valuation to improve, investors will need to witness positive outcomes. UBS highlights that the failure to complete the sale of assets in Kentucky and recent setbacks, including delays and rejections of applications for $2.2 billion worth of renewable projects at SWEPCO, have introduced some risks to the company’s execution.
6. EPAM Systems, Inc. (NYSE:EPAM)
Number of Hedge Fund Holders: 34
EPAM Systems, Inc. (NYSE:EPAM) is a provider of digital platform engineering and software development services. The company is based in Newtown, Pennsylvania.
On June 6, EPAM Systems, Inc. (NYSE:EPAM) was downgraded by Citi from Buy to Neutral, accompanied by a reduced price target of $220 compared to the previous target of $310. The analyst finds the company’s negative preannouncement, which occurred just four weeks after its Q1 earnings call, surprising. Citi notes that the need for management to rebuild credibility contributes to the concerns surrounding EPAM Systems, Inc. (NYSE:EPAM). While the macroeconomic environment is a factor of concern, the firm emphasizes that many risks faced by the company are specific to its own operations and not solely attributable to broader market conditions.
Harding Loevner Emerging Markets Equity Strategy made the following comment about EPAM Systems, Inc. (NYSE:EPAM) in its Q1 2023 investor letter:
“The portfolio’s returns in the roaring IT sector were hampered by software-engineering company EPAM Systems, Inc. (NYSE:EPAM) and payment-services provider Network International. EPAM signaled a more cautious outlook for growth and cost pressures related to the geographic reconfiguration of its East European engineering workforce in the wake of the war in Ukraine. UAE-based Network International indicated that challenging macroeconomic conditions in Africa may hinder near-term growth. In Communication Services, detractors included Safaricom, the leading mobile-network operator and payment-services company in Kenya, where the currency has weakened amid high inflation and a sizable current account deficit.
Buying Globant didn’t increase our portfolio weight in IT services, as the purchase was funded by reducing two other industry holdings, EPAM and Tata Consultancy Services, for which valuations had become less attractive. EPAM’s share price fell sharply in early 2022 after Russia invaded Ukraine, given that close to 60% of the company’s staff was working in the affected countries of Russia, Ukraine, and Belarus. We were patient through this period as EPAM management restructured its workforce; only 30% are now based in these three countries. Despite the disruption, productivity remained comparable to pre-war times, and EPAM managed to retain nearly all of its customers. As a result, the stock recovered from its lows last year, offering an opportunity to trim our position.”
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Disclosure: None. Analysts Are Downgrading These 10 Stocks is originally published on Insider Monkey.
