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Wall Street Is Downgrading These 3 Stocks. But Is That the Right Call?
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The S&P 500 was just pushed officially into correction territory, though the last few trading days have provided reprieve for most investors. Volatility is picking up in the market, amid the unwinding of the popular Yen carry trade, and shifting views on where central bank policy will go from here. New macro data out this week could shift views on how aggressively the Federal Reserve could cut rates, how many rate cuts could be coming, and the ultimate timing of such moves. For now, it’s just the market doing what it does best – speculating on what the future may have in store.
Valuing certain stocks at this point in the market cycle has become increasingly difficult. The following three stocks I’m going to discuss below have their fair share of bulls and long-term investors who likely won’t ever sell. But then again, there are those who want to hear what Wall Street analysts have to say, and act accordingly.
The following three companies are seeing significant bearish views build among some analysts, with downgrades coming in. Let’s dive into why that may be the case, and what investors may want to make of this reality.
Key Points About This Article:
- Market volatility has picked up, as investors price in a quickly-shifting monetary policy environment into the valuations of specific large-cap stocks.
- These three companies in particular have seen downgrades from Wall Street analysts, and here’s why.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
Disney (DIS)
American entertainment giant Walt Disney (NYSE:DIS) saw a 22% decline in stock price this year after its earlier rally. Since 2019, shares are down an impressive 33%, underperforming most other large-cap names in the market. A recent high-profile proxy battle with activist investor Nelson Peltz hasn’t been good for the company’s image. And the fact that Disney investors are in selling mode, with a number of insiders unloading shares (more than 30 million shares of DIS stock to be exact) may be concerning as well.
Wall Street analysts have reason to believe that Nelson Peltz had cause for concern with his initial proxy fight. Disney stock continues to trade more than 27% below its 2024 peak, and is actually down 26% over the past five years. With limited growth prospects, reports that spending at its theme parks is slowing as a pinched consumer tightens its belt, and concerns that Disney is losing its relevance among younger generations, there aren’t any shortage of concerns in the market.
Add on the fact that Disney’s second quarter results highlighted anemic growth, and a net income decline of $20 million, and you have the basis for short sellers to start targeting the company. Mostly criticized for launching Disney+ later than expected, market analysts think the company missed early streaming opportunities. The DTC segment struggles to replace profits from former cash cows like ABC and ESPN. Additionally, theme park revenues are slowing, with a potential recession likely to further impact the experiences division.
Despite its valuable IP, poor leadership has hindered Disney’s potential. This turmoil, combined with falling share prices, has put Disney on many investors’ sell lists.
Super Micro (SMCI)
Although this AI and tech company showed immense performance in 2024, Super Micro (NASDAQ:SMCI) currently faces challenges that can hinder future growth. Most notably, valuation concerns appear to be building. Currently, SMCI stock trades around 28-times trailing earnings, with some suggesting this valuation overprices the company’s future potential, given how much future demand has been pulled forward. That’s a fair argument to make (it’s not one I’d make, but it’s understandable).
Bank of America recently downgraded SMCI to Neutral from Buy after Q4 margins fell short, with a gross margin of 11.3% versus the expected 13.6%. Despite revenue meeting estimates, SMCI stock dropped 20% on Wednesday. The company’s Q1 FY2025 revenue guidance was strong, and its FY2025 revenue forecast of $28 billion exceeded expectations of $23.8 billion.
Bank of America also expects Super Micro’s gross margin to return to its usual 14-17% range by fiscal 2025, assuming improved manufacturing and new platform launches. These analysts downgraded the on ongoing margin pressures, competitive pricing concerns, and delays with high-margin GPU systems. They also reduced their price target from $1,090 to $700, reflecting broader sector trends.
Tesla (TSLA)
Tesla (NASDAQ:TSLA) stock showed a slight premarket increase of 0.2% to $200.47 on Monday, following a volatile week with three 3.5% swings and a nearly 4% weekly drop. Market analysts have seen an unsteady U.S market, and together Tesla announces more bad news: the halt on Cybertruck orders for its base model, priced at $60,990.
In 2024, Tesla continues to struggle, seeing a 30% decline due to slow EV demand and global economic issues. Price cuts have been taken on in a bid for the company to revive rather sluggish demand for its electric vehicles. And while overall volumes may not have declined to the degree many bears thought would be possible, it is true that these price cuts are impacting margins in a big way. In Tesla’s last quarter, its margin deterioration was horrendous. Those betting on the company remaining a high-margin tech stock appear to be set up for disappointment right now.
Growing competition, ongoing supply chain issues, and overall slower growth appear to be hampering the company. These headwinds look to be more persistent than many thought in 2024, and I think many analysts who have downgraded TSLA stock recently are right on the money with suggesting this stock is overvalued.
According to Craig Irwin of Roth MKM, the price target for Tesla should be $85 per share, calling TSLA to be “egregiously overpriced.” Other analysts have pegged the price target for TSLA stock between $115 and $310 per share. That’s a massive range, but I have to say, this is a stock that likely warrants such low price targets right now.
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