In this article, we discuss the 10 stocks that analysts are downgrading.
In late January, the United States Department of Commerce released Gross Domestic Product (GDP) numbers for the fourth quarter of 2021, reporting a close to 7% growth in the economy between October and December. The figure was well above the 2.3% growth registered during the third quarter of 2021 and equated to an annualized gain of around 5.7%, the fastest since in close to three decades. The growth came despite a rise in virus cases and slowed hiring, along with weaker-than-expected holiday sales numbers.
However, market experts have sharply revised their growth forecasts for the first quarter of 2022 as inflation batters the economy. The Federal Reserve is expected to raise interest rates in March as it seeks to tame inflation without putting the economy in recession. Joseph LaVorgna, a former member of the National Economic Council, recently told news platform CNBC that the economy is “downshifting and decelerating” and that although it was not in recession yet, it could go into it if the Fed got “too aggressive”.
Analysts have been busy updating their ratings to reflect the changing economic environment. Some of the top stocks that analysts recently downgraded include NVIDIA Corporation (NASDAQ:NVDA), JPMorgan Chase & Co. (NYSE:JPM), and Shopify Inc. (NYSE:SHOP), among others discussed in detail below.
Our Methodology
All the firms listed below have had their ratings downgraded by an investment advisory in the past few weeks. Data from around 900 elite hedge funds tracked by Insider Monkey was used to identify the number of hedge funds that hold stakes in each firm.
Analysts Are Downgrading These Stocks
10. Redfin Corporation (NASDAQ:RDFN)
Number of Hedge Fund Holders: 18
Redfin Corporation (NASDAQ:RDFN) is a residential real estate brokerage firm. The hedge fund sentiment around the stock is largely positive. At the end of the fourth quarter of 2021, 18 hedge funds in the database of Insider Monkey held stakes worth $850 million in Redfin Corporation, up from 12 the preceding quarter worth $551 million.
On February 18, Stephens analyst John Campbell downgraded Redfin Corporation stock to Equal Weight from Overweight and reduced the price target to $26 from $65, noting that investors were likely to have “too many questions” around the business model and the macro environment for the firm that it “won’t be able to answer in short order”.
Just like NVIDIA Corporation, JPMorgan Chase & Co., and Shopify Inc., Redfin Corporation is one of the stocks feeling the heat of an economic slowdown.
9. Bilibili Inc. (NASDAQ:BILI)
Number of Hedge Fund Holders: 33
Bilibili Inc. (NASDAQ:BILI) provides online entertainment services. On February 17, Goldman Sachs analyst Piyush Mubayi downgraded the stock to Neutral from Buy and reduced the price target to $43 from $105, noting that there was caution on the monetization pace of the company, the profitability, and the cash outlook amid a regulatory overhang around gaming in China.
Hedge funds have also been selling Bilibili Inc. stock in recent months. At the end of the fourth quarter of 2021, 33 hedge funds in the database of Insider Monkey held stakes worth $883 million in Bilibili Inc., compared to 35 in the preceding quarter worth $1.5 billion.
In its Q2 2021 investor letter, Baillie Gifford, an asset management firm, highlighted a few stocks and Bilibili Inc. was one of them. Here is what the fund said:
“One of the most important cognitive elements, is our recognition that consumer patterns and attitudes are evolving increasingly rapidly and with ever greater amplitude. While the human needs for self-actualisation, esteem and belonging are innate and immutable, they are being expressed in new ways. Tastes are being shaped by social groups who are culturally similar but geographically distant. The lines between the physical and digital-self continue to blur.
To those in the throes of middle age, this can be discombobulating. I profess to unease when my daughter recently earned five pounds stacking logs – only to ‘blow’ this pocket money on a pair of virtual Gucci sneakers for her online Roblox character. But we need to be imaginative about the possible size of the market for virtual luxury in the long term and it’s encouraging to observe that Kering is already on the front foot. It is also amply clear that the experienced Long Term Global Growth investors who predate Generations Y & Z, need the help of colleagues in understanding the mood and aspirations of a new cohort of conscious consumers. In this sense, the multigenerational and multicultural dynamic within the LTGG team (and indeed across the broader Baillie Gifford investment floor), has never seemed more important.
Meanwhile, it was our Shanghai-based colleagues who patiently educated us on the potential for the new holding in Bilibili Inc. – the fastest growing mainstream entertainment portal for Chinese teenagers and young adults. Bilibili’s range of video, gaming and anime comic content is formidable (and hugely under monetised) but the registration process for any budding Bilibili Inc. curator or commentator involves a test with one hundred multiple choice questions on topics including copyrights, commentary etiquette, platform neologism and – à la Mastermind – niche questions based on topics of the entrant’s choosing. To western observers, this is bemusing because every successful social platform in the west is focussed on reducing registration friction. But for Bilibili Inc., the initiation ritual of the entrance exam cements the bond that users have with the platform, aligning them with the existing community to drive a stickier userbase and fewer trolls – a dynamic that is so easy for a cognitively narrow stock market to overlook.”
8. 3M Company (NYSE:MMM)
Number of Hedge Fund Holders: 41
3M Company (NYSE:MMM) is a diversified technology firm. Elite hedge funds hold large stakes in the company. Among the hedge funds being tracked by Insider Monkey, Washington-based firm Fisher Asset Management is a leading shareholder in 3M Company with 5.7 million shares worth more than $1 billion.
On February 17, Morgan Stanley analyst Joshua Pokrzywinski downgraded 3M Company stock to Underweight from Equal Weight and revised the price target down to $150 from $185, noting that while the fundamentals of the firm were improving, the growth story was still “insufficient”.
7. Roku, Inc. (NASDAQ:ROKU)
Number of Hedge Fund Holders: 43
Roku, Inc. (NASDAQ:ROKU) owns and runs a TV streaming platform. On February 20, investment advisory Pivotal Research downgraded Roku, Inc. stock to Sell from Hold and reduced the price target to $95 from $350. Other analysts have also lowered their price targets on the stock as growth equities are battered amid rising inflation.
Hedge funds have been offloading Roku, Inc. stock as well. At the end of the fourth quarter of 2021, 43 hedge funds in the database of Insider Monkey held stakes worth $2.2 billion in Roku, Inc., compared to 67 in the preceding quarter worth $2.8 billion.
In its Q4 2020 investor letter, RGA Investment Advisors, an asset management firm, highlighted a few stocks and Roku, Inc. was one of them. Here is what the fund said:
“For two years running, Roku, Inc. has now been either the largest or second largest driver of performance in portfolios. When we purchased Roku, Inc., obviously we never expected such a phenomenal outcome, so quickly—these things can only be chalked up to luck. However, we do think luck is the residue of design and Roku, Inc. had all the hallmarks ex ante as the kind of position that could do something wildly spectacular. One of the first signs in seeing Roku’s potential was the sharp contrast between our modeled expectations for the top line of the business and where the consensus expectations were. This was the Shopify setup all over again. By this time, we had added an additional tool to our analytical framework, and this helped further enforce our conviction that not only was it we who were right about where things should go, but also that the very existence of this gap could be a potent source of fuel behind the stock as the world came around to our expectation. Specifically, we had become increasingly comfortable building lifetime value analyses of companies, and notably, when we bought Roku, Inc., we were quite confident that with only modest annual increases in average revenue per user (ARPU), and a 5-year average customer lifespan, we were buying the company for its existing customer base and nothing more. In other words, the growth at Roku was entirely free at the prevailing prices we bought into.”
6. U.S. Bancorp (NYSE:USB)
Number of Hedge Fund Holders: 46
U.S. Bancorp (NYSE:USB) is a financial services holding firm. Interest in the stock has increased as a rate hike looms. At the end of the fourth quarter of 2021, 46 hedge funds in the database of Insider Monkey held stakes worth $7.9 billion in U.S. Bancorp, up from 42 the preceding quarter worth $8.3 billion.
On February 14, Jefferies analyst Ken Usdin downgraded U.S. Bancorp stock to Hold from Buy and reduced the price target to $64 from $66, noting the firm would witness less upside from interest rates due to a historically high deposit beta and fewer buybacks compared to peers in the marketplace.
In addition to NVIDIA Corporation, JPMorgan Chase & Co., and Shopify Inc., U.S. Bancorp is one of the stocks on the radar of institutional investors.
In its Q4 2020 investor letter, Mairs & Power, an asset management firm, highlighted a few stocks and U.S. Bancorp was one of them. Here is what the fund said:
“On the negative side, one of the Fund’s biggest detractor in 2020 was U.S. Bancorp. Like all banks, U.S. Bancorp was hurt by the difficult interest rate environment and credit cycle concerns. We believe banks are strong enough to survive the current sector doldrums, and they remain some of the market’s most attractive opportunities.”
5. Zendesk, Inc. (NYSE:ZEN)
Number of Hedge Fund Holders: 57
Zendesk, Inc. (NYSE:ZEN) operates as a software development firm. The hedge fund sentiment around the stock makes for positive reading. At the end of the fourth quarter of 2021, 57 hedge funds in the database of Insider Monkey held stakes worth $2.5 billion in Zendesk, Inc., up from 53 in the previous quarter worth $1.5 billion.
On February 14, Wolfe Research analyst Alex Zukin downgraded Zendesk, Inc. stock to Peer Perform from Outperform, noting that the fourth quarter results of the firm were at lower beat magnitudes than the trailing twelve month average and the outlook for 2022 by the management was also disappointing.
In its Q4 2020 investor letter, Wasatch Ultra Growth Fund, an asset management firm, highlighted a few stocks and Zendesk, Inc. was one of them. Here is what the fund said:
“Zendesk, Inc. was also a top contributor. The company provides business software using the software-as-a-service (SaaS) model. Zendesk, Inc. has experienced strong demand throughout the Covid19 pandemic from customers in e-commerce, as well as from other businesses with employees working from home. Additionally, demand from clients in the travel and hospitality industries has picked up as global economies have begun to reopen. Adjusted earnings per share rose 42% in the company’s most recent quarter on revenue growth of 24% compared to the same quarter a year ago. An improved sales outlook from Zendesk’s management also helped lift the stock.”
4. Paramount Global (NASDAQ:VIAC)
Number of Hedge Fund Holders: 64
Paramount Global (NASDAQ:VIAC) is a New York-based media and entertainment firm. On February 16, Bank of America Securities analyst Jessica Reif Ehrlich downgraded the stock to Neutral from Buy and reduced the price target to $39 from $52, noting that near-term headwinds for the firm would drive a year-over-year decline in earnings.
Top hedge funds continue to hold large stakes in Paramount Global. At the end of the fourth quarter of 2021, 64 hedge funds in the database of Insider Monkey held stakes worth $1 billion in Paramount Global, the same as in the previous quarter worth $1.2 billion.
3. Shopify Inc. (NYSE:SHOP)
Number of Hedge Fund Holders: 86
Shopify Inc. provides a commerce platform and related services. It is one of the top ecommerce stocks on Wall Street. Among the hedge funds being tracked by Insider Monkey, Connecticut-based investment firm Lone Pine Capital is a leading shareholder in Shopify Inc. with 1.3 million shares worth more than $1.9 billion.
On February 17, investment advisory Roth Capital downgraded Shopify Inc. stock to Neutral from Buy, noting that international expansion plans would have a material impact on profits for the firm in 2022. Analyst Darren Aftahi issued the ratings update.
In its Q4 2020 investor letter, RGA Investment Advisors, an asset management firm, highlighted a few stocks and Shopify Inc. was one of them. Here is what the fund said:
“While we are pleased with the results of these specific purchases, we made a huge mistake of omission at that time. This mistake will likely be one of the biggest we ever make in our careers. Specifically, we did deep work on Shopify Inc. and loved everything about the business qualitatively. Unfortunately, we ultimately found ourselves unable to get comfortable with the numbers.
We built our model up from the key performance indicators (KPIs) that drive revenues. Our last save of the model dated 8/3/2016 looked as follows: (Page 2). These numbers seemed right from everything we understood about the company. While we tend not to rely on sell-side consensus estimates before finishing our own workup of the business, we do give them a look once we feel comfortable with how we have approached our analysis as it is often helpful to get a sense of what the average participant in the market expects the business to do. With Shopify, the sell-side consensus was so far from where our numbers were shaking out, it seemed almost impossible that we were basing our analysis on the same underlying information. Our natural next step was thus to take the sell-side consensus data and work backwards to figure out the implied expectations on each of the key revenue drivers. Here is what the sell-side consensus looked like as at the time: (Page 2).
Shopify’s actual revenues for 2016-2018 ended up being $389m, $673m and $1,073m. In other words, not only were we justifiably far more optimistic than the consensus estimate, but we also were far too conservative in terms of how the company actually performed.
The nature of our job as securities analysts is to take calculated risks, in an uncertain world where the “true” answer is inherently unknowable before the fact. We operate in what many call an “efficient market” and subscribe to the belief that for the most part, markets are generally pretty efficient and it requires differentiated analysis to find a return above what the market can offer. So why did we pass on Shopify Inc. despite 1) deeply believing in the qualitative elements of the business; and, 2) seeing a meaningful gap between what we expected and the consensus expected? The answer is unfortunate but simple: we lacked confidence in ourselves. It was the first time we truly experienced such a stark divergence between our expectation and the consensus and the result was the inclination was to pound ourselves over the head with how dumb we must be, rather than the other way around. We also learned that the truly great companies use their strong business advantages, smart management and execution to raise the bar every step along the way. Obviously this is a cycle which cannot continue ad infinitum, but especially in instances where our qualitative work identifies the inherent strengths in the business and the numbers shake out to be quite fair, the consistent “raising of the bar” can be a potent driver for the stock.
Please do not judge us too harshly for our mistake on Shopify Inc., for we have from the very beginning made one commitment above all else to both our clients and ourselves: that we will be better today than we were yesterday, and better tomorrow than we are today. While this mistake was quite costly, it ended up being a key confidence and process builder.”
2. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Holders: 107
JPMorgan Chase & Co. is a New York-based financial services firm. On February 14, Jefferies analyst Ken Usdin downgraded the stock to Hold from Buy and reduced the price target to $155 from $180.
JPMorgan Chase & Co. continues to attract the interest of elite hedge funds. Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in JPMorgan Chase & Co. with 7.4 million shares worth more than $1.1 billion.
In its Q4 2020 investor letter, Bretton Fund, an asset management firm, highlighted a few stocks and JPMorgan Chase & Co. was one of them. Here is what the fund said:
“After a strong performance in 2019, we wrote this about our bank stocks in last year’s report: “There will be another recession sooner than later, and our banks will see larger loans losses, but we think this is more than priced into the stock, and our banks are well reserved for that eventuality.” Little did we know “sooner” really meant “a few weeks from now.” Despite the economic shock, the banks still have huge capital cushions that can absorb large loan losses. Our remaining bank investments, JPMorgan and Bank of America, increased their reserves significantly at the beginning of the Covid-19 crisis in anticipation of imminent loan defaults, but with the government stimulus and perhaps a more resilient economy than many would have guessed, actual loan losses are up only slightly. They might happen later in 2021, but with an additional stimulus package and the vaccine rolling out, the large-scale losses may not be as bad as most people predicted. The bigger drag on the banks’ earnings power is lower rates, which in our opinion will persist for a long time. Despite this drag, we estimate both JPMorgan and Bank of America will continue to grow revenue and earnings over the next few years, while we believe their stocks remain bargains in a somewhat expensive market. JPMorgan’s earnings per share declined 17% last year, and its stock returned -5.5%. Bank of America’s earnings, which are more sensitive to interest rates, were down 32%, and its stock returned -11.6%.”
1. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 110
NVIDIA Corporation is a visual computing firm. Hedge funds have been piling into the stock as the share price falls amid a broader lull around growth stocks. At the end of the fourth quarter of 2021, 110 hedge funds in the database of Insider Monkey held stakes worth $10.4 billion in NVIDIA Corporation, compared to 83 the preceding quarter worth $10 billion.
On February 17, Summit Insights analyst Kinngai Chan downgraded NVIDIA Corporation stock to Hold from Buy, noting that the gross margin for the firm was now close to peaking and there was a “higher possibility” of downside risk from crypto mining.
In its Q1 2021 investor letter, Vulcan Value Partners, an asset management firm, highlighted a few stocks and NVIDIA Corporation was one of them. Here is what the fund said:
“NVIDIA Corp. is the dominant supplier of Graphics Processing Units (GPUs) worldwide. NVIDIA’s GPUs are at the intersection of a number of important computing trends including the movement to the Cloud, artificial intelligence, autonomous vehicles, edge computing, gaming, and more. We previously owned NVIDIA and sold it in the third quarter of 2020 as the price to value gap closed and our margin of safety was reduced. As with all our MVP companies, we continued to follow NVIDIA closely. Since that time, NVIDIA reported excellent results and its value has compounded rapidly. The technology selloff at the beginning of the year negatively affected the stock price while our estimate of NVIDIA’s value per share increased. This happy combination of events created a margin of safety and an opportunity to once again add NVIDIA to the portfolio.”
You can also take a peek at 10 Companies that Benefit From Crypto Mining and 12 Best Artificial Intelligence Stocks To Invest In Right Now.
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This article is originally published at Insider Monkey.
