Wall Street analysts follow S&P 500 stocks more closely than almost anyone. But even they get it wrong sometimes, too.
Analysts, on average, bestowed their strongest buy ratings on a dozen S&P 500 stocks coming into this year that have done dismally. All of them, including consumer discretionary plays Caesars Entertainment and Bath & Body Works plus most of the tech-related giants like Microsoft, Alphabet and Amazon.com, are down 20% or more this year, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
A "strong buy" that's down more than the S&P 500's 18% drop isn't a great start to the year. But it's just another reminder of how the ongoing correction continues to challenge nearly all investors.
"Some would argue that much of the recession risk is priced in," said Carl Ludwigson, managing director at Bel Air Investment Advisors. "However, the entirety of the repricing was multiple compression and does not account for a potential decline in earnings which remains the key risk as the economy slows."
S&P 500 Analysts: Burned On Bold Calls Like Caesars
Analysts, to be sure, are biased toward being bullish — more than 80% of the stocks in the S&P 500 are rated "outperform" or higher. But it's the most bullish calls of all that burned Wall Street analysts the most.
Coming into the year, analysts only gave 18 S&P 500 stocks, or less than 4% of the companies in the index, their very highest "strong buy" rating. But here's the painful part. Only six of those stocks bestowed with the most emphatic buy ratings beat the market. The rest performed poorly, or very poorly in many cases.
The toughest call for analysts was Caesars Entertainment, the operator of casinos in Las Vegas.
Coming into the year, the stock won analysts' upmost buy rating. Many analysts saw a big comeback in visitors to Las Vegas and in gaming in general. And that's been true, to a degree. Caesars' revenue is seen jumping more than 12% to $10.7 billion in 2022. Yet, the stock has been an absolute bust, losing more than half its value this year so far to 46.69 a share. The problem? The company is still losing money in an environment where investors want steady cash flows. Analysts think Caesars will lose another $500 million on an adjusted basis this year, or $2.19 a share.
Blown Tech Calls: Microsoft
Coming into the year, Microsoft was a big favorite. Even large billionaire investors like it. But it hasn't worked out all that well.
Analysts rated the AAA-rated technology stock a strong buy coming into 2022. What's not to like? A rock-solid balance sheet. Plus a fast-growing cloud business. The company's adjusted profit this calendar year is seen rising nearly 6%. But there's a question now whether those forecasts are too bullish. Microsoft missed its adjusted profit target for the June quarter by nearly 3%. And the stock? It's down a crushing 27% this year — hardly the kind of run you'd expect from a Blue Chip.
But it's not analysts' biggest miss this year in technology. Analysts strong buy recommendation of well-managed computer chip testing equipment maker Teradyne has fizzled. Despite high hopes coming into 2022, shares of the industry leader are down nearly 50%. Last year's global shortage in computer chips has turned into a glut. Analysts now think the company's adjusted profit per share will fall by more than a third this fiscal year.
Analysts Proven Right By S&P 500, Eventually?
The analysts, though, remain hopeful. They're calling for all 18 stocks they called a strong buy on coming into 2022 to be higher in 12 months. And not by a little. The average gain expected in each stock is more than 33%.
And if that happens, S&P 500 investors will be glad they still listened.
Strong Buys In S&P 500 Go Bust
Stocks analysts rated strong buys at the start of the year now down 20% or more this year
| Company | Symbol | Stock YTD % ch. | Sector |
|---|---|---|---|
| Caesars Entertainment | -50.1% | Consumer Discretionary | |
| Teradyne | -49.6 | Information Technology | |
| Bath & Body Works | -46.4 | Consumer Discretionary | |
| Salesforce | -39.1 | Information Technology | |
| ServiceNow | -32.9 | Information Technology | |
| Alexandria Real Estate Equities | -32.3 | Real Estate | |
| Catalent | -30.3 | Health Care | |
| Alphabet | -28.9 | Communication Services | |
| Laboratory Corporation of America | -28.7 | Health Care | |
| Microsoft | -27.1 | Information Technology | |
| IQVIA Holdings | -26.5 | Health Care | |
| Amazon.com | -24.1 | Consumer Discretionary |
