By Paul R. La Monica
Wall Street analysts tend to be an optimistic bunch -- but they might be just a bit too bullish right now on some of the market's most popular and largest stocks, particularly three members of the Magnificent Seven.
Nicholas Colas, co-founder of DataTrek Research, pointed out in a Thursday report that according to research from FactSet, more than 90% of the analysts covering Microsoft, Amazon.com, and Nvidia have Buy ratings on those stocks.
That could be a cause for concern with earnings season for the first quarter just around the corner. Expectations are sky-high for the Magnificent Seven, even though their stocks have already pulled back significantly this year.
The takeaway: Analysts may be forced to lower their ratings en masse if these companies disappoint.
"These are the names to watch during the upcoming Q1 earnings season for any signs of weakening fundamentals. This is especially true for Microsoft, Amazon, and Nvidia," Colas wrote, noting that this trio alone makes up a 16% weighting in the S&P 500.
"They, more than any other Big Tech names, will need to deliver good results and solid guidance or risk downgrades from the analysts covering their stocks," Colas added.
Colas pointed out that several other notable stocks in the S&P 500 also are vulnerable, since analysts are almost universally positive on them. More than 90% of the analysts that cover UnitedHealth Group, Delta Air Lines, and United Airlines also rate those stocks as Buy.
"There's almost no one left to upgrade the name, but downgrades are a distinct possibility," Colas pointed out, adding that "stocks with very high percentages of 'Buy' recommendations are not exactly underappreciated stories. Pretty much everyone agrees they are great companies and solid investments."
With that in mind, Colas said investors might be better off looking for stocks that aren't as loved by the Street. He thinks there is a better chance that an analyst who has a Hold or even a Sell rating on a stock will be able to upgrade the shares if there is even the slightest bit of good news.
"Stocks often rally when news gets 'less bad'," Colas pointed out, adding that "an upgrade from 'Sell' to 'Hold' can be just as powerful as 'Hold' to 'Buy', given how rare 'Sell' recommendations are."
With that in mind, FactSet also has published a list of S&P 500 stocks with the highest percentage of Sell ratings, which includes Franklin Resources, T. Rowe Price, Paramount Global, Consolidated Edison and Southwest Airlines. More than 25% of the analysts who cover those stocks rates those stocks Sell.
Also on this list, ironically enough? FactSet Research Systems.
Write to Paul R. La Monica at paul.lamonica@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 28, 2025 13:30 ET (17:30 GMT)
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