Professional analysts have more time, more data, and better access to companies than most private investors. As such, the wisdom of the City crowd is worth paying attention to; because, at the end of the day, you’re either going with the pros or going against them when you invest.
Right now, Royal Bank of Scotland Group (LSE: RBS) (NYSE: RBS.US), Unilever (LSE: ULVR) (NYSE: UL.US) and Wm. Morrison Supermarkets (LSE: MRW) are among the most unfavoured stocks of the professional analysts.
Royal Bank of Scotland
RBS pre-released a set of forecast-thumping first-half numbers on 25 July, a week ahead of the group’s formal half-year report. The early release sparked an 11% spike in the shares amid what analysts at Investec called “wild euphoria”.
However, while many City experts have upgraded their full-year forecasts, there hasn’t been a major change to the balance of buy, hold, and sell recommendations. RBS remains the bank analysts love to hate: sell recommendations outweigh buys by five to one.
A couple of analysts have moved from sell to hold, but Investec has gone the other way to join the bear camp. Investec is not alone in believing market sentiment has “got ahead of financial reality”, but is more forthright in suggesting “investors should again feel able to short the stock with confidence”.
RBS trades on a forward P/E of 13.6 at a share price of 353p, which is much richer than its rivals; and there’s no dividend either.
Wm. Morrison Supermarkets
The recent announcement of the departure of Tesco chief executive Philip Clarke has been broadly welcomed by the City. Even though analysts acknowledge Tesco’s problems haven’t gone away, and that the risk of a dividend cut has now actually increased, City sentiment has improved — albeit remaining on the bearish side.
In contrast, the vast majority of analysts see only black clouds on the horizon for Morrisons, which is firmly established as the City experts’ most unloved supermarket. Getting on for two thirds of analysts now rate Morrisons a sell compared with nearer one third a year ago.
Morrisons is on a forward P/E of 14 at a share price of 168p, well above the ratings of Tesco and J Sainsbury, which stand at 10 and 10.4 respectively.
Unilever
Most analysts have consumer goods giant Unilever marked as a hold, but a growing minority have moved to sell over the last year. The number of bears has doubled from three to six, and the proportion now rating Unilever a sell has risen to almost one third.
This is a far bigger cadre of bears than we find at rival Reckitt Benckiser, or at companies in the wider consumer goods sector, such as British American Tobacco and Diageo.
There were a few positives — on margins and earnings — in Unilever’s recent half-year results, but some analysts preferred to focus on sales volume growth, which remained at 1.9% quarter-on-quarter versus an expected Q2 gain of 2.4%. Analysts at RBC Capital Markets said: “The absence of quarter-on-quarter acceleration is disappointing”.
With short-term pressure on analysts’ forecasts on the downgrade side, as a result of the ongoing intensely competitive environment Unilever finds itself in, it’s hard to argue against the view of even neutral analysts such as Canaccord that Unilever’s “valuation remains relatively stretched”: the forward P/E is close to 20 at a share price of 2,563p.