One tool that investors can easily access for any stock is analyst ratings. These ratings point you in the direction of stocks to buy and stocks to sell.
Analysts generally become experts in specific sectors. They have access to corporate data and company management that retail investors do not. That means their ratings tend to carry significant weight for investors.
Analyst ratings generally project the outlook for a stock in the next 12 to 18 months. If your timeline is longer than that, the ratings may not mean that much. If you’re a trader looking for a short-term profit, you’ll be looking for technical indicators.
However, if you’re looking for stocks that might outperform in the next six to eight months, analyst ratings are a solid resource for performing predictive analysis.
Having said that, they’re only one data point, and they’re not perfect. After all, if it was that easy nobody would ever lose money in the market. You have to ask yourself if you agree with the thesis laid out by analysts.
In selecting the stocks to sell for this article, I’ll concede that all three stocks may be good picks for nimble traders. However, for long-term investors, it may be time to set these stocks aside.
Lennar Corporation (NYSE:LEN) is one of the nation’s largest homebuilders. The company’s portfolio covers all points along the homebuyer’s journey from first-time buyers to luxury homes. An obvious headwind for LEN stock is interest rates which have driven up the price of a 30-year fixed mortgage to an average of 7.8% in the week of October 13, 2023.
This is showing up in the company’s revenue and earnings which have been down on a YoY basis in the last two quarters. The company’s inventory of homes is increasing, albeit slightly.
On the plus side, Lennar’s largest market is Florida, which is the fastest growing market in the United States. Even better, Warren Buffett recently bought shares of LEN stock.
Out of 22 analysts that have issued a rating on Lennar, 16 give the stock a “Strong Buy” or “Buy” rating. That’s likely because of metrics like a forward P/E that’s more than eight times earnings. Are they wrong? Over time, LEN stock is likely to be just fine. However, with short interest up about 6% in the last month and the stock price down by 4% in that same time, investors seem to be saying it’s one of the stocks to sell.
Paychex (NASDAQ:PAYX) offers integrated human resources services. The company’s signature product, Paychex Flex is a cloud-based software tool that helps companies manage payroll, employee benefits and insurance tools and services.
The company’s revenue and earnings are growing YoY. The issue here is one of valuation. PAYX stock trades at a forward P/E ratio of more 25 times. That’s a bit steep for a company that’s only projected to grow earnings by 6.6% in the next 12 months. With 6% stock price growth in the last 12 months, investors seem to agree.
In the last three months, the analyst’s outlook for PAYX stock is neutral. However, in the last month, TD Cowen reiterated its Outperform rating and Argus raised its price target for the stock. That may not count as a full-throated buy for Paychex, but those ratings are going against the grain. However, this may be a time when you should avoid recency bias and stick with the consensus.
Boston Scientific (BSX)
Boston Scientific (NYSE:BSX) is a stock that at first glance should be on a list of stocks to buy not stocks to sell. The company operates in the medical devices sector. The sector went nowhere for about two years as demand for non-essential surgeries moved forward in fits and starts. However, in the last year, Boston Scientific is showing growth on its top and bottom lines. That is likely to continue into the future.
Once again, however, valuation is a concern. BSX stock is currently trading at around 83x and the forward price-to-earnings ratio is still a robust 25 times. To be fair, higher P/E ratios may be more common in the medical device sector. Two of Boston Scientific’s primary competitors Becton, Dickinson & Company (NYSE:BDX) and Stryker (NYSE:SYK) have similar forward P/E ratios.
However, when we combine that with positive analyst sentiment, you’ll see that 28 out of 33 analysts give BSX stock either a “Strong Buy” or “Buy” rating. That may not be warranted by the potential growth in a stock that doesn’t offer a dividend.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.