Analysts called the Tesla crash and the big tumble in video streamers' stocks. But their warnings are still going unheeded on a number of S&P 500 companies.
Nearly a dozen S&P 500 companies, including industrials American Airlines and Snap-on plus communications services Lumen Technologies are still grossly overvalued compared to analysts' 12-month price targets on the stocks, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
By analysts' estimates, all 11 of these S&P 500 stocks are at least 10% overvalued. And the warnings come amid big run-ups in most of them. Investors are piling into stocks thought to benefit from a stronger economy. The 11 stocks are up an average 28.2% this year, while the SPDR S&P 500 ETF Trust is up just 5.9%. What's more, eight of the 11 are up 20% or more in 2021 so far.
Seeing analysts dig in with warnings of lower price targets amid a rally, especially in cyclical stocks, is noteworthy.
S&P 500 Analysts Are Actually Bullish
Analysts have pounded the table warning of overvaluation of Tesla stock. And they also cautioned on shares of ViacomCBS and Discovery before they sold off.
But overall, analysts — like usual — are mostly bullish on S&P 500 stocks. Analysts' 12-month price targets on the individual stocks in the S&P 500 are 6.5% higher than Friday's closing prices.
And fundamentals back up the bullishness. Already this year, 60 companies told analysts their earnings in the current quarter will be better than they previously estimated, says John Butters, earnings analyst at Factset.
That's the highest number of S&P 500 companies issuing positive guidance for a quarter since at least 2006. Only about half that many companies were so positive on the same quarter a year ago. And that in turn means analysts now think S&P 500 companies' profit will jump 23.3% in the first quarter. They only saw a 15.8% jump in first quarter profit at the end of 2020.
But Analysts See Pockets Of Overvaluation
American Airlines is the S&P 500 stock analysts think is way beyond where it should be. And it's easy to see why.
Just this year, the airline's shares soared 45.4% to 22.93 a share. New investors piled into the airline's shares, even though it lost roughly $9 billion in 2020 as the pandemic all but shut down air travel. Analysts see a comeback, sort of. American is expected to only lose roughly $4 billion, or $7.61 a share, in 2021. But profitability isn't seen until 2022.
As a result, analysts' 12-month price target on American is just 15.47 a share. If that's right, it means the stock is 33% overvalued. And it doesn't have strong enough fundamentals to hold it up, either. The company's IBD Composite Rating is just 45. Do you know what to look at before buying American's stock?
Also in the industrials sector, analysts think tool seller Snap-on ran up too far, as well. Shares are up more than 34% this year to 229.63.
Unlike American, Snap-on has the fundamentals to back it up.
It sports a Composite Rating of 88. Snap-on's adjusted profit per share is seen hitting $12.44 in 2021, up nearly 7% from 2020. But again, analysts think the bulls are getting carried away. After all, profit fell 5% in 2020. So analysts think the company is only worth 190.33 a share in 12 months, or 16% less than it's trading now.
Watch Out For S&P 500 Dividend Darlings
High dividend payers in the S&P 500 are setting the markets on fire. All eight of the top yielding stocks in the S&P 500 are topping the index in 2021 so far. And that includes voice and data networking company, Lumen.
Lumen is known for its whopping 7.4% dividend yield. That's solid in a world when the S&P 500 yields just 1.5%. But it's even more famous among investors this year for a 35% jump in its stock price to 13.16. It's not exactly a screamingly positive fundamental story, either. Profit per share rose 26.5% in 2020. But profit is seen dropping 6.5% in 2021.
Analysts just think it's not worth what investors are paying. They're calling for Lumen to trade for 10.78 a share in 12 months, or 18% less than it is now.
It goes without saying analysts aren't always right. They're often wrong. But their warnings this year on S&P 500 high-flyers, though, have been spot on so worth at least listening to.
The Most Overvalued S&P 500 Stocks: Analysts
| Company | Symbol | Target Price* | Stock YTD % Ch. | Implied Downside* | Sector | Composite Rating |
|---|---|---|---|---|---|---|
| American Airlines | 15.47 | 45.4% | -32.5% | Industrials | 45 | |
| Lumen Technologies | 10.78 | 35.0% | -18.1% | Communication Services | 61 | |
| Snap-on | 190.33 | 34.2% | -17.1% | Industrials | 88 | |
| Nucor | 66.38 | 49.1% | -16.3% | Materials | 97 | |
| Expeditors International of Washington | 91.64 | 13.3% | -15.0% | Industrials | 80 | |
| Franklin Resources | 25.47 | 17.6% | -13.4% | Financials | 79 | |
| Genuine Parts | 104.33 | 18.0% | -12.0% | Consumer Discretionary | 64 | |
| Whirlpool | 196.44 | 23.6% | -11.9% | Consumer Discretionary | 91 | |
| Iron Mountain | 33.25 | 26.5% | -10.8% | Real Estate | 70 | |
| Unum | 24.73 | 20.8% | -10.8% | Financials | 59 | |
| A. O. Smith | 62.11 | 26.8% | -10.6% | Industrials | 74 |
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