With a market that only needs a little good news to fuel gains, it's tough to tell how the latest earnings season will impact stocks in the short-term. Alcoa (AA) kicked off the fourth quarter data deluge on Monday afternoon reporting weak results, but in-line with analyst estimates. Every morning and every afternoon through mid-February will bring us news of who beat and who missed analyst earnings estimates, and we'll see instant pre and post-market price reactions.
Breakout decided to take a look at a different data point — Which stocks are most hated and beloved on Wall Street according to analyst buy, sell, and hold ratings. These recommendations typically garner attention only when there's a big upgrade or downgrade of a well-known company. But it's important to know the sentiment of your stocks.
"If you look at the companies that have the largest percentage of sells in the S&P 500 as of today, you're looking at companies that are either expecting significant declines in earnings in 2012 —which would include a company such as Netflix (NFLX) or Washington Post (WPO)-- or companies were maybe valuations have gotten a little ahead of the earnings; companies such as AutoNation (AN) and Hormel (HRL)," says John Butters, senior earnings analyst at Factset.
According to his data, Sears (SHLD) and Washington Post (WPO) have 0% buy ratings --they're what we're calling Wall Street's most hated stocks. Sears is rounded out with 40% hold and 60% sell. That's literally as ugly as it gets. WPO is 50-50, holds and sells. Eek!
"But SELL! No one has sell; sell is an anathema!" exclaims Breakout's Jeff Macke. And he's absolutely right. Sell ratings are relatively rare on Wall Street.
Check out the Factset chart below listing the top 10 highest percentage of sell ratings.
Factset reports that of the more than 10,500 ratings on S&P 500 stocks heading into 2012, 54% were buy ratings, 42% were holds, and just 4% were sell ratings.
"When we look at earnings estimates, we certainly see a situation where analysts typically tend to be conservative or underestimate the numbers a little bit," Butters explains. "When we look at these recommendation data, you're certainly seeing a case where analysts are typically overly optimistic."
So if Wall Street is so perma-bullish —rating 96% of the S&P 500 either a buy or a hold, then which stocks are the current darlings?
"Really the common trend you're seeing in all these (top rated) companies, are companies that are either expected to see large earnings growth in 2012 — in the double-digit range 10-20% or higher; or companies where the long-term growth rate is expected to be in the double-digit range," says Butters. "So you've got companies on the list such as Halliburton (HAL), Agilent Technologies (A), Apple (AAPL), and so forth."
Check out the Factset chart below listing the top 10 highest percentage of buy ratings.