In this article, we discuss the 5 stocks that analysts are downgrading. If you want to read our detailed analysis of these stocks, go directly to Analysts Are Downgrading These 10 Stocks.
5. Zendesk, Inc. (NYSE:ZEN)
Number of Hedge Fund Holders: 57
Zendesk, Inc. (NYSE:ZEN) operates as a software development firm. The hedge fund sentiment around the stock makes for positive reading. At the end of the fourth quarter of 2021, 57 hedge funds in the database of Insider Monkey held stakes worth $2.5 billion in Zendesk, Inc. (NYSE:ZEN), up from 53 in the previous quarter worth $1.5 billion.
On February 14, Wolfe Research analyst Alex Zukin downgraded Zendesk, Inc. (NYSE:ZEN) stock to Peer Perform from Outperform, noting that the fourth quarter results of the firm were at lower beat magnitudes than the trailing twelve month average and the outlook for 2022 by the management was also disappointing.
In its Q4 2020 investor letter, Wasatch Ultra Growth Fund, an asset management firm, highlighted a few stocks and Zendesk, Inc. (NYSE:ZEN) was one of them. Here is what the fund said:
“Zendesk, Inc. (NYSE:ZEN) was also a top contributor. The company provides business software using the software-as-a-service (SaaS) model. Zendesk, Inc. (NYSE:ZEN) has experienced strong demand throughout the Covid19 pandemic from customers in e-commerce, as well as from other businesses with employees working from home. Additionally, demand from clients in the travel and hospitality industries has picked up as global economies have begun to reopen. Adjusted earnings per share rose 42% in the company’s most recent quarter on revenue growth of 24% compared to the same quarter a year ago. An improved sales outlook from Zendesk’s management also helped lift the stock.”
4. Paramount Global (NASDAQ:VIAC)
Number of Hedge Fund Holders: 64
Paramount Global (NASDAQ:VIAC) is a New York-based media and entertainment firm. On February 16, Bank of America Securities analyst Jessica Reif Ehrlich downgraded the stock to Neutral from Buy and reduced the price target to $39 from $52, noting that near-term headwinds for the firm would drive a year-over-year decline in earnings.
Top hedge funds continue to hold large stakes in Paramount Global (NASDAQ:VIAC). At the end of the fourth quarter of 2021, 64 hedge funds in the database of Insider Monkey held stakes worth $1 billion in Paramount Global (NASDAQ:VIAC), the same as in the previous quarter worth $1.2 billion.
3. Shopify Inc. (NYSE:SHOP)
Number of Hedge Fund Holders: 86
Shopify Inc. (NYSE:SHOP) provides a commerce platform and related services. It is one of the top ecommerce stocks on Wall Street. Among the hedge funds being tracked by Insider Monkey, Connecticut-based investment firm Lone Pine Capital is a leading shareholder in Shopify Inc. (NYSE:SHOP) with 1.3 million shares worth more than $1.9 billion.
On February 17, investment advisory Roth Capital downgraded Shopify Inc. (NYSE:SHOP) stock to Neutral from Buy, noting that international expansion plans would have a material impact on profits for the firm in 2022. Analyst Darren Aftahi issued the ratings update.
In its Q4 2020 investor letter, RGA Investment Advisors, an asset management firm, highlighted a few stocks and Shopify Inc. (NYSE:SHOP) was one of them. Here is what the fund said:
“While we are pleased with the results of these specific purchases, we made a huge mistake of omission at that time. This mistake will likely be one of the biggest we ever make in our careers. Specifically, we did deep work on Shopify Inc. (NYSE:SHOP) and loved everything about the business qualitatively. Unfortunately, we ultimately found ourselves unable to get comfortable with the numbers.
We built our model up from the key performance indicators (KPIs) that drive revenues. Our last save of the model dated 8/3/2016 looked as follows: (Page 2). These numbers seemed right from everything we understood about the company. While we tend not to rely on sell-side consensus estimates before finishing our own workup of the business, we do give them a look once we feel comfortable with how we have approached our analysis as it is often helpful to get a sense of what the average participant in the market expects the business to do. With Shopify, the sell-side consensus was so far from where our numbers were shaking out, it seemed almost impossible that we were basing our analysis on the same underlying information. Our natural next step was thus to take the sell-side consensus data and work backwards to figure out the implied expectations on each of the key revenue drivers. Here is what the sell-side consensus looked like as at the time: (Page 2).
Shopify’s actual revenues for 2016-2018 ended up being $389m, $673m and $1,073m. In other words, not only were we justifiably far more optimistic than the consensus estimate, but we also were far too conservative in terms of how the company actually performed.
The nature of our job as securities analysts is to take calculated risks, in an uncertain world where the “true” answer is inherently unknowable before the fact. We operate in what many call an “efficient market” and subscribe to the belief that for the most part, markets are generally pretty efficient and it requires differentiated analysis to find a return above what the market can offer. So why did we pass on Shopify Inc. (NYSE:SHOP) despite 1) deeply believing in the qualitative elements of the business; and, 2) seeing a meaningful gap between what we expected and the consensus expected? The answer is unfortunate but simple: we lacked confidence in ourselves. It was the first time we truly experienced such a stark divergence between our expectation and the consensus and the result was the inclination was to pound ourselves over the head with how dumb we must be, rather than the other way around. We also learned that the truly great companies use their strong business advantages, smart management and execution to raise the bar every step along the way. Obviously this is a cycle which cannot continue ad infinitum, but especially in instances where our qualitative work identifies the inherent strengths in the business and the numbers shake out to be quite fair, the consistent “raising of the bar” can be a potent driver for the stock.
Please do not judge us too harshly for our mistake on Shopify Inc. (NYSE:SHOP), for we have from the very beginning made one commitment above all else to both our clients and ourselves: that we will be better today than we were yesterday, and better tomorrow than we are today. While this mistake was quite costly, it ended up being a key confidence and process builder.”
2. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Holders: 107
JPMorgan Chase & Co. (NYSE:JPM) is a New York-based financial services firm. On February 14, Jefferies analyst Ken Usdin downgraded the stock to Hold from Buy and reduced the price target to $155 from $180.
JPMorgan Chase & Co. (NYSE:JPM) continues to attract the interest of elite hedge funds. Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in JPMorgan Chase & Co. (NYSE:JPM) with 7.4 million shares worth more than $1.1 billion.
In its Q4 2020 investor letter, Bretton Fund, an asset management firm, highlighted a few stocks and JPMorgan Chase & Co. (NYSE:JPM) was one of them. Here is what the fund said:
“After a strong performance in 2019, we wrote this about our bank stocks in last year’s report: “There will be another recession sooner than later, and our banks will see larger loans losses, but we think this is more than priced into the stock, and our banks are well reserved for that eventuality.” Little did we know “sooner” really meant “a few weeks from now.” Despite the economic shock, the banks still have huge capital cushions that can absorb large loan losses. Our remaining bank investments, JPMorgan and Bank of America, increased their reserves significantly at the beginning of the Covid-19 crisis in anticipation of imminent loan defaults, but with the government stimulus and perhaps a more resilient economy than many would have guessed, actual loan losses are up only slightly. They might happen later in 2021, but with an additional stimulus package and the vaccine rolling out, the large-scale losses may not be as bad as most people predicted. The bigger drag on the banks’ earnings power is lower rates, which in our opinion will persist for a long time. Despite this drag, we estimate both JPMorgan and Bank of America will continue to grow revenue and earnings over the next few years, while we believe their stocks remain bargains in a somewhat expensive market. JPMorgan’s earnings per share declined 17% last year, and its stock returned -5.5%. Bank of America’s earnings, which are more sensitive to interest rates, were down 32%, and its stock returned -11.6%.”
1. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 110
NVIDIA Corporation (NASDAQ:NVDA) is a visual computing firm. Hedge funds have been piling into the stock as the share price falls amid a broader lull around growth stocks. At the end of the fourth quarter of 2021, 110 hedge funds in the database of Insider Monkey held stakes worth $10.4 billion in NVIDIA Corporation (NASDAQ:NVDA), compared to 83 the preceding quarter worth $10 billion.
On February 17, Summit Insights analyst Kinngai Chan downgraded NVIDIA Corporation (NASDAQ:NVDA) stock to Hold from Buy, noting that the gross margin for the firm was now close to peaking and there was a “higher possibility” of downside risk from crypto mining.
In its Q1 2021 investor letter, Vulcan Value Partners, an asset management firm, highlighted a few stocks and NVIDIA Corporation (NASDAQ:NVDA) was one of them. Here is what the fund said:
“NVIDIA Corp. is the dominant supplier of Graphics Processing Units (GPUs) worldwide. NVIDIA’s GPUs are at the intersection of a number of important computing trends including the movement to the Cloud, artificial intelligence, autonomous vehicles, edge computing, gaming, and more. We previously owned NVIDIA and sold it in the third quarter of 2020 as the price to value gap closed and our margin of safety was reduced. As with all our MVP companies, we continued to follow NVIDIA closely. Since that time, NVIDIA reported excellent results and its value has compounded rapidly. The technology selloff at the beginning of the year negatively affected the stock price while our estimate of NVIDIA’s value per share increased. This happy combination of events created a margin of safety and an opportunity to once again add NVIDIA to the portfolio.”
You can also take a peek at 10 Companies that Benefit From Crypto Mining and 12 Best Artificial Intelligence Stocks To Invest In Right Now.
