In this article, we discuss the 10 stocks that analysts are downgrading. If you want to skip our detailed analysis of these stocks, go directly to Analysts Are Downgrading These 5 Stocks.
In late January, the United States Department of Commerce released Gross Domestic Product (GDP) numbers for the fourth quarter of 2021, reporting a close to 7% growth in the economy between October and December. The figure was well above the 2.3% growth registered during the third quarter of 2021 and equated to an annualized gain of around 5.7%, the fastest since in close to three decades. The growth came despite a rise in virus cases and slowed hiring, along with weaker-than-expected holiday sales numbers.
However, market experts have sharply revised their growth forecasts for the first quarter of 2022 as inflation batters the economy. The Federal Reserve is expected to raise interest rates in March as it seeks to tame inflation without putting the economy in recession. Joseph LaVorgna, a former member of the National Economic Council, recently told news platform CNBC that the economy is “downshifting and decelerating” and that although it was not in recession yet, it could go into it if the Fed got “too aggressive”.
Analysts have been busy updating their ratings to reflect the changing economic environment. Some of the top stocks that analysts recently downgraded include NVIDIA Corporation (NASDAQ:NVDA), JPMorgan Chase & Co. (NYSE:JPM), and Shopify Inc. (NYSE:SHOP), among others discussed in detail below.
Our Methodology
All the firms listed below have had their ratings downgraded by an investment advisory in the past few weeks. Data from around 900 elite hedge funds tracked by Insider Monkey was used to identify the number of hedge funds that hold stakes in each firm.
Analysts Are Downgrading These Stocks
10. Redfin Corporation (NASDAQ:RDFN)
Number of Hedge Fund Holders: 18
Redfin Corporation (NASDAQ:RDFN) is a residential real estate brokerage firm. The hedge fund sentiment around the stock is largely positive. At the end of the fourth quarter of 2021, 18 hedge funds in the database of Insider Monkey held stakes worth $850 million in Redfin Corporation (NASDAQ:RDFN), up from 12 the preceding quarter worth $551 million.
On February 18, Stephens analyst John Campbell downgraded Redfin Corporation (NASDAQ:RDFN) stock to Equal Weight from Overweight and reduced the price target to $26 from $65, noting that investors were likely to have “too many questions” around the business model and the macro environment for the firm that it “won’t be able to answer in short order”.
Just like NVIDIA Corporation (NASDAQ:NVDA), JPMorgan Chase & Co. (NYSE:JPM), and Shopify Inc. (NYSE:SHOP), Redfin Corporation (NASDAQ:RDFN) is one of the stocks feeling the heat of an economic slowdown.
9. Bilibili Inc. (NASDAQ:BILI)
Number of Hedge Fund Holders: 33
Bilibili Inc. (NASDAQ:BILI) provides online entertainment services. On February 17, Goldman Sachs analyst Piyush Mubayi downgraded the stock to Neutral from Buy and reduced the price target to $43 from $105, noting that there was caution on the monetization pace of the company, the profitability, and the cash outlook amid a regulatory overhang around gaming in China.
Hedge funds have also been selling Bilibili Inc. (NASDAQ:BILI) stock in recent months. At the end of the fourth quarter of 2021, 33 hedge funds in the database of Insider Monkey held stakes worth $883 million in Bilibili Inc. (NASDAQ:BILI), compared to 35 in the preceding quarter worth $1.5 billion.
In its Q2 2021 investor letter, Baillie Gifford, an asset management firm, highlighted a few stocks and Bilibili Inc. (NASDAQ:BILI) was one of them. Here is what the fund said:
“One of the most important cognitive elements, is our recognition that consumer patterns and attitudes are evolving increasingly rapidly and with ever greater amplitude. While the human needs for self-actualisation, esteem and belonging are innate and immutable, they are being expressed in new ways. Tastes are being shaped by social groups who are culturally similar but geographically distant. The lines between the physical and digital-self continue to blur.
To those in the throes of middle age, this can be discombobulating. I profess to unease when my daughter recently earned five pounds stacking logs – only to ‘blow’ this pocket money on a pair of virtual Gucci sneakers for her online Roblox character. But we need to be imaginative about the possible size of the market for virtual luxury in the long term and it’s encouraging to observe that Kering is already on the front foot. It is also amply clear that the experienced Long Term Global Growth investors who predate Generations Y & Z, need the help of colleagues in understanding the mood and aspirations of a new cohort of conscious consumers. In this sense, the multigenerational and multicultural dynamic within the LTGG team (and indeed across the broader Baillie Gifford investment floor), has never seemed more important.
Meanwhile, it was our Shanghai-based colleagues who patiently educated us on the potential for the new holding in Bilibili Inc. (NASDAQ:BILI) – the fastest growing mainstream entertainment portal for Chinese teenagers and young adults. Bilibili’s range of video, gaming and anime comic content is formidable (and hugely under monetised) but the registration process for any budding Bilibili Inc. (NASDAQ:BILI) curator or commentator involves a test with one hundred multiple choice questions on topics including copyrights, commentary etiquette, platform neologism and – à la Mastermind – niche questions based on topics of the entrant’s choosing. To western observers, this is bemusing because every successful social platform in the west is focussed on reducing registration friction. But for Bilibili Inc. (NASDAQ:BILI), the initiation ritual of the entrance exam cements the bond that users have with the platform, aligning them with the existing community to drive a stickier userbase and fewer trolls – a dynamic that is so easy for a cognitively narrow stock market to overlook.”
8. 3M Company (NYSE:MMM)
Number of Hedge Fund Holders: 41
3M Company (NYSE:MMM) is a diversified technology firm. Elite hedge funds hold large stakes in the company. Among the hedge funds being tracked by Insider Monkey, Washington-based firm Fisher Asset Management is a leading shareholder in 3M Company (NYSE:MMM) with 5.7 million shares worth more than $1 billion.
On February 17, Morgan Stanley analyst Joshua Pokrzywinski downgraded 3M Company (NYSE:MMM) stock to Underweight from Equal Weight and revised the price target down to $150 from $185, noting that while the fundamentals of the firm were improving, the growth story was still “insufficient”.
7. Roku, Inc. (NASDAQ:ROKU)
Number of Hedge Fund Holders: 43
Roku, Inc. (NASDAQ:ROKU) owns and runs a TV streaming platform. On February 20, investment advisory Pivotal Research downgraded Roku, Inc. (NASDAQ:ROKU) stock to Sell from Hold and reduced the price target to $95 from $350. Other analysts have also lowered their price targets on the stock as growth equities are battered amid rising inflation.
Hedge funds have been offloading Roku, Inc. (NASDAQ:ROKU) stock as well. At the end of the fourth quarter of 2021, 43 hedge funds in the database of Insider Monkey held stakes worth $2.2 billion in Roku, Inc. (NASDAQ:ROKU), compared to 67 in the preceding quarter worth $2.8 billion.
In its Q4 2020 investor letter, RGA Investment Advisors, an asset management firm, highlighted a few stocks and Roku, Inc. (NASDAQ:ROKU) was one of them. Here is what the fund said:
“For two years running, Roku, Inc. (NASDAQ:ROKU) has now been either the largest or second largest driver of performance in portfolios. When we purchased Roku, Inc. (NASDAQ:ROKU), obviously we never expected such a phenomenal outcome, so quickly—these things can only be chalked up to luck. However, we do think luck is the residue of design and Roku, Inc. (NASDAQ:ROKU) had all the hallmarks ex ante as the kind of position that could do something wildly spectacular. One of the first signs in seeing Roku’s potential was the sharp contrast between our modeled expectations for the top line of the business and where the consensus expectations were. This was the Shopify setup all over again. By this time, we had added an additional tool to our analytical framework, and this helped further enforce our conviction that not only was it we who were right about where things should go, but also that the very existence of this gap could be a potent source of fuel behind the stock as the world came around to our expectation. Specifically, we had become increasingly comfortable building lifetime value analyses of companies, and notably, when we bought Roku, Inc. (NASDAQ:ROKU), we were quite confident that with only modest annual increases in average revenue per user (ARPU), and a 5-year average customer lifespan, we were buying the company for its existing customer base and nothing more. In other words, the growth at Roku was entirely free at the prevailing prices we bought into.”
6. U.S. Bancorp (NYSE:USB)
Number of Hedge Fund Holders: 46
U.S. Bancorp (NYSE:USB) is a financial services holding firm. Interest in the stock has increased as a rate hike looms. At the end of the fourth quarter of 2021, 46 hedge funds in the database of Insider Monkey held stakes worth $7.9 billion in U.S. Bancorp (NYSE:USB), up from 42 the preceding quarter worth $8.3 billion.
On February 14, Jefferies analyst Ken Usdin downgraded U.S. Bancorp (NYSE:USB) stock to Hold from Buy and reduced the price target to $64 from $66, noting the firm would witness less upside from interest rates due to a historically high deposit beta and fewer buybacks compared to peers in the marketplace.
In addition to NVIDIA Corporation (NASDAQ:NVDA), JPMorgan Chase & Co. (NYSE:JPM), and Shopify Inc. (NYSE:SHOP), U.S. Bancorp (NYSE:USB) is one of the stocks on the radar of institutional investors.
In its Q4 2020 investor letter, Mairs & Power, an asset management firm, highlighted a few stocks and U.S. Bancorp (NYSE:USB) was one of them. Here is what the fund said:
“On the negative side, one of the Fund’s biggest detractor in 2020 was U.S. Bancorp (NYSE:USB). Like all banks, U.S. Bancorp (NYSE:USB) was hurt by the difficult interest rate environment and credit cycle concerns. We believe banks are strong enough to survive the current sector doldrums, and they remain some of the market’s most attractive opportunities.”
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Disclosure. None. Analysts Are Downgrading These 10 Stocks is originally published on Insider Monkey.
