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S&P 500 Companies with Lowest Percent of Buy Ratings Are Top Performers in 2018

Companies and Earnings

By John Butters  |  December 19, 2018

At the start of this year (December 31, 2017), there were 11,147 ratings on stocks in the S&P 500. Of these 11,147 ratings, 49.5% were Buy ratings, 45.3% were Hold ratings, and 5.2% were Sell ratings. How have analysts performed in terms of their Buy ratings on S&P 500 companies in 2018?

To analyze the performance, FactSet divided the stocks that were in the S&P 500 on December 31, 2017 into five equal-sized groups (quintiles) based on the percentage of Buy ratings at the start of the year (December 31, 2017).

The 20% of S&P 500 companies with the highest percentage of Buy ratings were placed in the first group (Quintile 1). The 20% of S&P 500 companies with next highest percentage of Buy ratings were placed in the second group (Quintile 2). The 20% of S&P 500 companies with the lowest percentage of Buy ratings were placed in the last group (Quintile 5). FactSet then looked at the average total return and median total return for each group from December 31, 2017 through December 13, 2018 to measure performance. For companies that no longer were traded publicly as of December 13, the last available trading price was used in the analysis when available.

Average Buy Ratings by Percent in 2018

The quintile with the 20% of S&P 500 stocks with the lowest percentage of Buy ratings (Quintile 5) at the start of the year has recorded the highest average total return (+3.6%) and the highest median total return (+4.3%) to date of the five quintiles. In fact, this quintile is the only quintile to report a positive average total return and positive median total return during this period. The remaining four quintiles have all reported negative average and median totals returns since the start of the year. The average percentage of Buy ratings for a stock in the fifth quintile was 16.7%, while the median percentage of Buy ratings for a stock in the fifth quintile was 17.6%.

Percentage of Buy Rating

Best Performers

Of the stocks in this group, TripAdvisor has been the best performer to date. The price return and total return for TripAdvisor from December 31, 2017 through December 13, 2018 is 78.1%. The price of the stock has increased to $61.39 from $34.46 during this period. On December 31, 2017, 2 of the 26 ratings (8%) on TripAdvisor were Buy ratings. Other top performers in this quintile include Chipotle Mexican Grille, McCormick & Company, Under Armour, and Macy’s.

The quintile with the 20% of S&P 500 stocks with the highest percentage of Buy ratings (Quintile 1) at the start of the year has recorded the lowest average total return (-3.6%) and the lowest median total return (-6.0%) of the five quintiles to date. The average percentage of Buy ratings for a stock in this quintile was 77.3%, while the median percentage of Buy ratings for a stock in this quintile was 75.0%.

Of the stocks in this group, Mohawk Industries has been the worst performer to date. The price return and total return for Mohawk Industries from December 31, 2017 through December 13, 2018 is -57.2%. The price of the stock has decreased to $118.20 from $275.90 during this period. On December 31, 2017, 18 of the 23 ratings (77%) on Mohawk Industries were Buy ratings. Other bottom performers in this quintile include Western Digital, Halliburton, Kraft Heinz, and Applied Materials.

It is interesting to note that in 2017, the 20% of S&P 500 companies with the highest percentage of Buy ratings at the start of the year were the top performers for the year and the 20% of S&P 500 companies with lowest percentage of Buy ratings at the start of the year were the worst performers. For more details on 2017, please see this article:

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John Butters

Senior Earnings Analyst

John’s weekly research report, Earnings Insight provides analysis and commentary on trends in corporate earnings data for the S&P 500, including revisions to estimates, year-over-year growth, performance relative to expectations, and valuations. He is a widely used source for the media and has appeared on CNBC, Fox Business News, and the Business News Network. In addition, he has been cited by numerous print and online publications such as The Wall Street Journal, Financial Times, The New York Times, MarketWatch, and Yahoo! Finance.

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