Wall Street analysts are generally reluctant to recommend stocks against stocks, and they certainly don’t have a perfect track record. However, seeing where analysts think there is trouble ahead for certain stocks could be a great place to start your research – whether you agree with them or vehemently disagree. Below, we’ll take a look at three stocks that Wall Street’s most pessimistic analysts see plunge 50% or more in the near future, with the aim of providing information that could help you make your own decision.
Actions of the drilling specialist Transocéanique (NYSE : RIG) have seen a lot of ups and downs over the past few years, and unfortunately long-term investors have suffered a lot more downtime. With oil prices rising from triple-digit levels, Transocean’s stock has lost over 90% of its value from the early to mid-2010s. Yet more recently the stock has rallied in parallel. on the rise in crude prices, jumping nearly seven times from their worst levels last October.
Most analysts seem to think the driller’s actions have gone too far too fast. Currently trading at close to $ 4.50 per share, the average price target is 44% below $ 2.50. The lowest target is just $ 0.50 per share, almost 90% below the current share price.
Comments from Barclays are fairly representative of what Wall Street is saying about Transocean. In March, Barclays downgraded its equal to underweight rating, and its target price of $ 2 for the share was a discount of more than 50% from where the stock was trading at. the time. Barclays argued that the share price seemed overly bullish about a resumption of offshore drilling activity.
Nonetheless, crude prices have continued to rise since then, and the stock has climbed despite short-term interest of around 14% of Transocean’s current float. Further strength in the oil markets should help Transocean’s business, but it is unclear whether the stock has already taken into account a recovery.
2. American Airlines Group
A different recovery game is a bit more controversial. American Airlines Group (NASDAQ: AAL) saw its stock plunge at the start of the COVID-19 pandemic, as air travel halted. Massive losses have affected the airline since, and those losses could continue well into the future. Still, hopes of a long-term recovery helped US stocks regain much of the ground they had lost.
Analysts are also divided on the US outlook. Jefferies improved the stock from underperformance to conservation and set a price target of $ 25 per share, indicating recovery prospects that should outweigh the danger of high leverage. Susquehanna’s analysts, however, did not budge from their negative rating on American, and its price target of $ 10 per share reflected the belief that only domestic airlines would likely outperform early in the recovery, as international restrictions. linked to the pandemic remained in place.
With a short interest of over 14% of the stock’s free float, American has a large contingent of investors betting against it. Still, airlines have been popular choices among retail investors, and that sets up the showdown we’ve seen with many companies in recent months.
3. AMC Entertainment Holdings
To finish, AMC Entertainment Holdings (NYSE : AMC) is a big battleground in the investment community. The action of the theater operator has jumped 2,500% since the start of the year. Still, analysts are universally convinced that the stock price will fall back to earth, with price targets ranging from $ 16 on the high end to just $ 1 on the low end. These calls involve reductions of 70 to 98% from current levels.
Here, however, the investment community itself has defied these analyst calls. In early June, AMC raised $ 587 million by selling 11.55 million shares at a price above $ 50 per share. This was a huge improvement from a previous capital increase in late April and early May of 43 million shares at an average price of just under $ 10.
Despite – or perhaps because of – the huge rise in AMC’s stock price, short-term interest remains high at 17% of the free float. It is inevitable that AMC’s business will improve when people return to theaters in full force, but whether the stock can hold on to its gains is a whole different story.
Wall Street going to win?
Wall Street was notoriously wrong with some of its short calls in recent months. In the minds of many investors, this makes bearish choices like these potentials buy candidates rather than actions to be avoided.
Nonetheless, these three stocks are a reminder that stock prices rise before industry conditions improve. It is entirely possible that even if their underlying businesses see continued signs of recovery, their stocks could still fall in the near term from current levels.