Where S&P Bucks Conventional Wisdom
At Standard & Poor's, we have a team of nearly 100 equity analysts worldwide following approximately 1,800 stocks—and naturally, their opinions on some issues can differ from the "conventional wisdom" of the rest of Wall Street. We thought it would be interesting to find out exactly where our analysts zig when the Street zags.
We started with the stocks that carry the highest investment rankings in S&P's Stock Appreciation Ranking System (STARS), a qualitative system based on fundamental research conducted by S&P's own analysts. Stocks ranked 5 STARS (strong buy) or 4 STARS (buy) are expected by S&P analysts to outperform the S&P 500 index on a total return basis over the coming 12 months, with shares rising in price on an absolute basis. Each name had to have a market cap above $1 billion.
From that list, we screened for those names carrying significantly lower opinions from other investment research outfits. Based on data from research provider I/B/E/S, they had to carry an average opinion from the rest of Wall Street equivalent to, or lower than, S&P's 3 STARS, or hold, ranking.
Of course, differences in stock ratings may not arise from disagreement on the prospects for the company's business—or its future viability—but rather, the stock's valuation. Those analysts who assign lower rankings may believe that the stock in question has little room for further price appreciation.
Then we looked for those issues garnering negative attention from another group: short-sellers. Each issue had to have short interest as a percentage of its float in the highest 20% of all public companies.
Why are we accentuating the negative? Here's our thinking: Companies with negative views from analysts and short sellers—but with positive fundamentals and valuation, by our lights—could get an extra pop based on unexpected good news such as an earnings surprise.
Our search turned up a 11 names:
|Company||S&P STARS Rank|
|Casey's General Stores (CASY)||4|
|Citadel Broadcasting (CDL)||4|
|Fastenal Company (FAST)||4|
|First Industrial Realty (FR)||4|
|Four Seasons (FS)||4|
|Garmin Ltd. (GRMN)||5|
|IAC/Interactive Corp (IACI)||5|
|Indymac Bancorp (NDE)||4|
|Penn Real Estate Trust (PEI)||4|
|Tootsie Roll Industries (TR)||4|
|Websense Inc. (WBSN)||4|