Amazon And Other Analysts’ Favorite Stocks Face-Planted In 2022, Can This Year’s Crop Do Better?

When 2022 began, AmazonAMZN
was Wall Street analysts’ favorite stock. Thirty-one analysts said to buy it, with nary a “hold” or “sell” to be heard. The stock fell nearly 50% last year.

This is not an anomaly. The other stocks that the analytical corps adored when the year began – MicrosoftMSFT
, Tenable Holdings (TENB) and ZoomInfo Technologies (ZI) dropped 28%, 31% and 53%, respectively.

Thus, the analysts’ darlings averaged a 40% decline.

Last year wasn’t the only year when the Wall Street savants looked more like fools. For 24 years I have tracked the performance of the four stocks analysts love most when each year begins, and the four they most despise.

The adored stocks have averaged a 5.9% return, and the despised stocks a 6.4% return, while the S&P has posted an average return of 11.5%. The figures cover all year from 1998 through 2022, except for 2008 when I was temporarily retired as a columnist.

Box Score

In 24 years, the analysts’ darlings have beaten the S&P 500 only seven times, while trailing the index 17 times. Against the despised stocks, the analysts have 12 wins, 11 losses and one tie.

Last year the despised stocks edged out the adored ones, but that doesn’t mean they were good performers. Clover Health Investments (CLOV) fell 75%, GameStopGME
50% and J. Sainsbury plc (JSAIY) 24%. Only Consolidated EdisonED
rose, returning 16%.

Average those four numbers and you get a mean return of negative 33%, seven percentage points better than the analysts’ favorites but 15 points worse than the S&P 500, which fell 18.11% for the year, after taking dividends into account.

All this doesn’t mean that brokerage-house analysts are stupid. They’re not. But human beings simply can’t predict the future. In addition, analysts are subject to potential sources of bias, such as their firms’ desire to win investment-banking assignments from companies.

Adored Stocks

As 2023 begins, analysts most-adored stock is Karuna Therapeutics (KRTX) with 19 “buy” ratings and no “hold” or “sell” ratings. This biotech company, with headquarters in Boston, Massachusetts, seeks to address neuropsychiatric disorders.

I’ve written several articles arguing that investors should shun stocks selling for more than 100 times revenue. Karuna sells for 136 times revenue.

Second on the favorites list is SLB
SLB
, formerly Schlumberger, the largest oilfield-service company in the world. It has 18 “buys,” and no “holds” or “sells.” Since I believe the oil-and-gas industry is in a sustainable comeback, I agree with the analysts on this one.

The third darling is S&P Global (SPGI), the parent of Standard & Poor’s, with 16 buy ratings out of 16 opinions. It provides financial information, promulgates market indices, and has a big bond-rating business. It’s a good company but in my opinion the stock is fully valued.

In fourth place is T-Mobile US (TMUS) with 15 “buy” ratings with no dissents. Partly owned by Deutsche Telekom, T-Mobile has been gaining market share in the US, but it appears to me it’s sacrificing some profitability to do it. The stock has done well, but it’s not one of my favorites.

Despised Stocks

The stock analysts most despise is American States Water Co. (AWR), with three “sell” ratings out of five opinions. This company was also on the hated list in 2019, yet it rose 31%. I tend to agree with the analysts’ dislike, but I don’t find it exceptionally bad.

The same ratings profile applies to GreifGEF
, which ranks second because it’s slightly smaller than American States Water. Greif makes industrial packaging, including steel, fiber and plastic drums. I think it’s a decent little company.

Third place in the analysts’ doghouse goes to Southern CopperSCCO
. Seven analysts follow it and four rate it a “sell.” I’ve owned this stock in the past with good results, but it’s scary to own a copper company when the economy appears headed for a recession.

Rounding out the despised brigade is CloroxCLX
with eight “sell” ratings out of 14 opinions. This stock doubled during the pandemic on enthusiasm for germ-killing products. I agree with the analysts’ disdain here. To me the stock seems expensive and the debt too high.

Analyst data for the survey this year (and in several past years) came from Zacks Investment Research. Rankings are based on the percentage of analysts with a favorable or unfavorable rating, not the raw number of analysts.

Disclosure: I have no positions in the stocks discussed in today’s column, either for myself or for clients.