Analyst ratings can be a key piece of information that investors look for in stock evaluation. Typically, analyst upgrades are associated with bullish sentiment and downgrades are linked to bearish sentiment.
However, typically doesn't mean always. There are times when analysts get it wrong. There can be many reasons for that. To begin with, analyst ratings have become more complex than a buy, hold, or sell rating. There are now terms like overweight, underweight, outperform, and market perform to digest.
But that's not your concern. You just want to take advantage and buy stocks that may be trading at a discount.
In this special presentation, we used the Most Downgraded Stocks tool on MarketBeat to find seven stocks that have received downgrades from analysts in the 30 days ending October 23, 2024. In each case, the sentiment may be overly pessimistic, or it may signal that a bottom is in, or near, for the stock.
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- PepsiCo
- Occidental Petroleum
- Zimmer Bionet
- e.l.f. Beauty
- Coty
- Hershey
- Okta
#1 - PepsiCo (NASDAQ:PEP)
PepsiCo Inc. (NASDAQ: PEP) has had seven downgrades and one Sell rating. PEP stock currently has a consensus Hold rating. More concerning for investors is that except for a spike in May 2023, the stock has been flat for the better part of the last two years.
The concern is about what the company can do to spur growth. Consumers have hit their limit in terms of their ability and willingness to accept price increases. Without that pricing power and with pressure to ensure they are not guilty of “shrinkflation,” you can see why analysts are concerned.
However, even the lowest price target is right around the stock’s current price. That means investors should be more concerned about the ceiling than the floor.
Even if that growth is delayed, the cost-cutting measures the company has taken ensure that the dividend is safe. That dividend currently yields 3.13%, and this dividend king has been increasing it at a three-year annualized growth rate of 7.12%, nearly three times the current pace of inflation.
About PepsiCo
PepsiCo, Inc engages in the manufacture, marketing, distribution, and sale of various beverages and convenient foods worldwide. The company operates through seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East and South Asia; and Asia Pacific, Australia and New Zealand and China Region.
Read More - Current Price
- $152.79
- Consensus Rating
- Hold
- Ratings Breakdown
- 6 Buy Ratings, 9 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $184.31 (20.6% Upside)
#2 - Occidental Petroleum (NYSE:OXY)
It hasn’t been a strong year for oil stocks and Occidental Petroleum Corp. (NYSE: OXY) is no exception. OXY stock is down 12.7% in 2024 which tracks with the price of WTI crude. Despite the volume of drilling being up, demand remains below expectations.
However, that hasn’t stopped Warren Buffett from adding more OXY stock to his Berkshire Hathaway (NYSE: BRK.B) portfolio. Berkshire now holds approximately 29% of the company’s stock and has regulatory approval that could increase that stake to 50%. You don’t have to admire his investing philosophy to take note of the conviction. That conviction may have to do with the Federal Reserve’s decision to cut interest rates, which is likely to spur economic activity after the election is over.
OXY stock has seven downgrades in the last 30 days, all related to the price target. This is another example of a stock where analysts are lowering what they were seeing as a ceiling. But that means investors should look at the current price as a firm floor with the potential for more upside if the economy gets stronger.
About Occidental Petroleum
Occidental Petroleum Corporation, together with its subsidiaries, engages in the acquisition, exploration, and development of oil and gas properties in the United States, the Middle East, and North Africa. It operates through three segments: Oil and Gas, Chemical, and Midstream and Marketing. The company's Oil and Gas segment explores for, develops, and produces oil and condensate, natural gas liquids (NGLs), and natural gas.
Read More - Current Price
- $47.13
- Consensus Rating
- Hold
- Ratings Breakdown
- 7 Buy Ratings, 13 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $62.10 (31.8% Upside)
#3 - Zimmer Bionet (NYSE:ZBH)
Zimmer Bionet Holdings Inc. (NYSE: ZBH) is one of the leading medical device companies, particularly in the area of orthopedic and musculoskeletal products (i.e. joint replacements). ZBH stock has been a tough hold for investors since the stock rallied sharply in 2021.
That spike in the stock price came as supply chain pressure eased and elective surgeries resumed after being curtailed by the pandemic. But the company has an exceptionally loyal user base of surgeons fueled by products that are perceived to offer competitive advantages. The company also continues to provide innovations, such as its ROSA robotic assistant, which is the future of surgery.
Analysts are lowering their price targets for ZBH over concerns about competition and a possible economic downturn that could reduce demand for elective surgeries which, by definition, are non-essential.
However, when you look at the analyst forecasts in totality, ZBH stock looks undervalued at a price of around $104 and down 14% in 2024.
About Zimmer Biomet
Zimmer Biomet Holdings, Inc, together with its subsidiaries, operates as a medical technology company worldwide. The company designs, manufactures, and markets orthopedic reconstructive products, such as knee and hip products; S.E.T. products, including sports medicine, biologics, foot and ankle, extremities, and trauma products; craniomaxillofacial and thoracic products comprising face and skull reconstruction products, as well as products that fixate and stabilize the bones of the chest to facilitate healing or reconstruction after open heart surgery, trauma, or for deformities of the chest.
Read More - Current Price
- $107.12
- Consensus Rating
- Hold
- Ratings Breakdown
- 7 Buy Ratings, 11 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $123.33 (15.1% Upside)
#4 - e.l.f. Beauty (NYSE:ELF)
After being one of the top-performing stocks in the first half of 2024, e.l.f. Beauty Inc. (NYSE: ELF) has retreated more than 40% and is down over 27% with two months left in 2024. The company has continued to gain market share over the last two years. But as a company such as NVIDIA Corp. (NASDAQ: NVDA) reminds investors, expectations can be a burden and a blessing.
That seems to be the case with e.l.f. Beauty. The stock has received five downgrades in the past month, all being of the price target variety. It still has a consensus Buy rating, but analysts wanted to see more from the company’s earnings and guidance and didn’t get it.
At around 37x forward earnings, it’s hard to say that ELF is fairly valued. That idea is backed up by short interest, which is around 8%. That's not excessive, but it does suggest that a healthy percentage of short-selling is happening.
The next catalyst for ELF stock is likely to come from its earnings report on November 6. Analysts will be looking particularly at the company’s skincare division as well as news of international expansion. Positive news in one or both areas could reverse analyst sentiment and the ELF stock price.
About e.l.f. Beauty
e.l.f. Beauty, Inc is a holding company, which engages in the provision of inclusive, accessible, clean, vegan and cruelty free cosmetics and skin care products. The company focuses on the e-commerce, national retailers and international business channels. Its brands include elf, elf skin, WELL People and KEYS soulcare.
Read More - Current Price
- $128.66
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 15 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $171.82 (33.5% Upside)
#5 - Coty (NYSE:COTY)
If you have an appetite for the risk that can come with low-priced stocks, Coty Inc. (NYSE: COTY) is another stock to consider in the health and beauty category. Any retail stock has its concerns; however, those risks seem to be amplified right now. COTY stock has been downgraded nine times in the last 30 days following the company’s guidance that warned of slowing U.S. sales and additional cost-cutting measures.
How much weight should you assign to that warning? Coty will report earnings in early November so when a company issues a pre-earnings warning, it’s important to pay attention.
On the other hand, the sell-off of approximately 18% in COTY stock since the company’s warnings seem excessive. That’s reflected in the consensus rating of Moderate Buy and a price target of $12.15, which points to a 62% upside. COTY stock also has respectable fundamentals with a forward price-to-earnings (P/E) ratio of around 13x earnings.
About Coty
Coty Inc, together with its subsidiaries, manufactures, markets, distributes, and sells beauty products worldwide. It operates through Prestige and Consumer Beauty segments. The company provides fragrance, color cosmetics, and skin and body care products. It offers Prestige segment products primarily through prestige retailers, including perfumeries, department stores, e-retailers, direct-to-consumer websites, and duty-free shops under the Burberry, Calvin Klein, Chloe, Davidoff, Escada, Gucci, Hugo Boss, Jil Sander, Joop!, Kylie Jenner, Lancaster, Marc Jacobs, Miu Miu, Orveda, philosophy, SKKN BY KIM, and Tiffany & Co brands.
Read More - Current Price
- $7.04
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 10 Buy Ratings, 6 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $11.41 (62.1% Upside)
#6 - Hershey (NYSE:HSY)
The Hershey Company (NYSE: HSY) is another market laggard, down about 3.4% in 2024. The company has felt margin pressure from higher cocoa prices and less demand from consumers. In fact, a bearish argument against Hershey’s is that sales volume is down as prices rise. That makes it hard to argue for a strong consumer.
In fact, of the seven downgrades Hershey’s has received in the past 30 days, three have been rating downgrades. One of the more devastating reports came from Redburn Atlantic, which initiated its coverage with a Sell rating, citing “flat chocolate consumption, rising health concerns and intensified competition.”
That's a glass-half-empty look at the future. Other analysts don’t appear to be that negative on the stock. Hershey’s needs the consumer to spend in this last quarter of the year. But HSY stock seems to have found a bottom around $180 which could make this a good time to accumulate and collect an inflation-beating dividend in the process.
About Hershey
The Hershey Company, together with its subsidiaries, engages in the manufacture and sale of confectionery products and pantry items in the United States and internationally. The company operates through three segments: North America Confectionery, North America Salty Snacks, and International. It offers chocolate and non-chocolate confectionery products; gum and mint refreshment products, including mints, chewing gums, and bubble gums; protein bars; pantry items, such as baking ingredients, toppings, beverages, and sundae syrups; and snack items comprising spreads, bars, snack bites, mixes, popcorn, and pretzels.
Read More - Current Price
- $170.26
- Consensus Rating
- Reduce
- Ratings Breakdown
- 0 Buy Ratings, 13 Hold Ratings, 6 Sell Ratings.
- Consensus Price Target
- $185.17 (8.8% Upside)
#7 - Okta (NASDAQ:OKTA)
I suppose you could argue we saved the “best” for last. Okta Inc. (NASDAQ: OKTA) has had a whopping 11 analyst downgrades in the last 30 days. Each of these downgrades has been in the form of analysts’ lowering their price targets which are still above the stock’s price of $72.40 as of this writing.
Some of the pressure on OKTA stock may be a case of guilt by association. The cybersecurity sector has been under pressure since the CrowdStrike Inc. (NASDAQ: CRWD) software glitch that caused significant disruptions to consumers and businesses. To be fair, Okta has had its own share of security glitches that have caused the company to reinvest in the business at the expense of earnings.
The company is one of the leaders in identity security through its zero-trust features. Revenue continues to grow on a year-over-year basis and the company has recently launched several new AI-based cybersecurity tools.
About Okta
Okta, Inc operates as an identity partner in the United States and internationally. The company offers Okta's suite of products and services used to manage and secure identities, such as Single Sign-On that enables users to access applications in the cloud or on-premises from various devices; Adaptive Multi-Factor Authentication provides a layer of security for cloud, mobile, web applications, and data; API Access Management enables organizations to secure APIs; Access Gateway enables organizations to extend Workforce Identity Cloud; and Okta Device Access enables end users to securely log in to devices with Okta credentials.
Read More - Current Price
- $83.28
- Consensus Rating
- Hold
- Ratings Breakdown
- 16 Buy Ratings, 15 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $104.45 (25.4% Upside)
If you're new to investing, you may think that an analyst downgrade means that a stock gets a Sell rating. That can be true, but not always. First, unless a stock is egregiously overvalued or there is news that negatively impacts the company, analysts are reluctant to give a stock a Sell rating.
Second, there are times when selling shares (i.e. taking profit) may not be the best action for investors to take. Also, as mentioned in the introduction, analysts have many more ratings that offer more nuance for investors to consider.
And as this presentation has explained, a stock downgrade doesn't necessarily mean a rating downgrade. In many cases, it means that an analyst has lowered their price target for the stock. And in many cases, the new price target may be above the current stock price.
Nevertheless, many analysts downgrade stocks for valid reasons. Part of your due diligence is understanding what those reasons are. MarketBeat provides an Analyst Forecasts link for every stock. It's an easy way to keep track of what analysts are saying about stocks you own or those on your watchlist.
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