And The Downgrades Have it

I’ve been doing a lot of thinking about where the market is headed over the short term. While I remain very hesitant it’s always interesting to see what “The Pros” have to say. And they are saying sell.

We are only 5 trading days into April and the analysts have been punishing dividend-paying stocks. 15 downgrades to only 6 upgrades on stocks that yield 2% or more. The reason behind these rating changes are telling. Most of the upgrades are based on restructuring or competitive advantages. The downgrades however are mostly based on valuation and lack of near term catalysts. I think these ratings are important to watch to gain a perspective on what the common investor is both thinking and hearing.

Notable Upgrades

There were no “Big Name” upgrades in the first week of April but we did see Niska Gas Storage Partners (NKA) get upgraded by just about everyone. Goldman, Wells Fargo, Stifel and others are all liking this company after it’s recent restructuring plan has been rolled out that will eliminate risk and grow distribution. It’s up around 25% since the upgrade but it has a solid 9% yield.

CommonWealth REIT (CWH) was also upgraded by Deutsche Bank due to its current value and prospective buyout situation.

Notable Downgrades

Just to name a few…

Regal Entertainment (RGS) – Regal was downgraded by MKM Partners from a buy to a Neutral due to a lack of near term catalysts. RGS has a dividend yield of 2.4% and has not raised its dividend in 2 years.

Exxon Mobile (XOM) – Exxon was downgraded by Oppenheimer to Perform saying XOM was most likely unable to maintain its annual share buyback plan and challenge to prevent a slip in production. That is no surprise to me. XOM has a dividend yield 2.6% and a 5 year dividend growth rate of 10.4%.

Texas Instruments (TXN) – TXN was downgraded by Stifel to a hold due to a possible slowdown in sales. Texas Instruments has a yield of 2.2% and has increased its dividend for 9 consecutive years. If revenue slows so will the stock price.

Duke Energy (DUK) – Argus downgraded Duke Energy due to valuation and low KWH sales growth. Duke has a dividend yield of 3.2% and just started paying dividends in 2012.

Texas Roadhouse (TXRH) – Deutsche Bank downgraded TXRH to hold based on valuation. The stock has a yield of 2.4% and is up 19.7% so far in 2013.


No comments yet. Why don’t you start the discussion?

Leave a Reply