Watch Out for These Stock Sell Offs

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CNBC recently reported on analysts’ picks of stocks with the furthest to fall. The list of companies are names with the largest projected declines according to the average 12-month price target from Wall St analysts. The stocks also have less than 50% buy ratings.

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What does that mean?

Analysts will grade a stock as a good or bad purchase idea. A “buy” rating means a recommendation to buy with the suggestion that the stock is currently underperforming and has potential to increase.

Sometimes, though, you’ll hear that the stocks have “less than 50% buy ratings.” This means that of the analysts reviewing the stocks, fewer than 50% recommend them as buys.

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CNBC’s analysis included three stocks that actually have a buy rating of 0, meaning all analysts recommended to either “hold” or “sell” the stock. One of those stocks, J.M. Smucker (NYSE: SJM), of jelly fame, is expected to drop almost 11% despite reporting positive numbers in its year-end earnings report. MarketWatch reports that Smucker expects full-year 2021 sales to drop 1-2%.

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A surprising name on the list, Oracle (NYSE: ORCL), is expected to fall 7% in the next year. Oracle reported lower-than-expected quarterly earnings in the first quarter, disappointing investors, CNBC reports.

Hewlett-Packard (NYSE: HPQ) is another tech stock on the list. It is expected to fall more than 7% this year.

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The two tech giants on the list are interesting amid news of an overvalued tech sector overall. In recent months, analysts have been bemoaning how expensive tech stocks have become relative to their value.

Investors do not always follow analyst projections, which partly drove up the prices of a lot of tech stocks this year despite weaker fundamentals. In the same vein, investors could again ignore analysts’ warnings here.

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For the average investor, paying attention to buy ratings and analyst predictions on value stocks is always thrifty. Institutional investors and hedge funds, which make trades large enough to move entire markets, certainly take heed. Analyst consensus tends to converge upon a similar line, and the average investor would do well to follow this advice even without money tied in to how precise the projections are.

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If you hold any of these names in your portfolio, now could be a good time to reassess them.

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About the Author

Georgina Tzanetos is a former financial advisor who studied post-industrial capitalist structures at New York University. She has eight years of experience with concentrations in asset management, portfolio management, private client banking, and investment research. Georgina has written for Investopedia and WallStreetMojo. 

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