Hello, Fools. I’m back to highlight three stocks that have recently been downgraded by Bay Street. While we should always be skeptical of analyst opinions, fresh downgrades can often call our attention to risks that we may not have been considering.
For value investors, they can even be a good source of contrarian buy ideas.
So, without further ado, let’s get to it.
Kicking things off is Husky Energy (TSX:HSE), which BMO Capital Markets downgraded from outperform to market perform on Friday. Along with the downgrade, BMO lowered its price target on the stock to $19 (from $23), representing just 13% worth of upside from where the stock sits now.
Husky’s stock has rallied ever since dropping its hostile takeover bid for MEG Energy, so it might make sense to take some profits off the table.
“Given the outcome of the tender process, Husky will continue to focus on capital discipline,” said Husky CEO Rob Peabody.
Of course, with Husky shares still down 25% over the past six months — versus a loss of 17% for the S&P/TSX Capped Energy Index — BMO might be underestimating the stock’s turnaround potential.
Next up, we have Stelco Steel (TSX:STLC), which Goldman Sachs downgraded from buy to neutral last week. Along with the downgrade, Goldman analyst Matthew Korn lowered his price target on the stock to $20 (from $27), representing about 21% worth of upside from where the stock opened this morning.
While that upside still looks tempting, it may not be enough to compensate for Stelco’s many risks. According to Korn, the company “faces limitations” such as slumping sheet prices, North American trade uncertainty, and trading liquidity.
That said, with the stock now off 30% over the past six months — versus a loss of 11% for the S&P/TSX Capped Materials Index — and trading at a paltry forward P/E of 3.4, aggressive contrarians may want to go against Goldman on this one.
Rounding out our list is First Majestic Silver (TSX:FR)(NYSE:AG), which BMO Capital Markets downgraded from market perform to outperform early last week. Along with the downgrade, RBC analyst Ryan Thompson lowered his price target to $8.25 (from $8.50), representing about 20% worth of upside from where the stock sits today.
Triggering the downgrade was poor Q4 results. Specifically, Thompson cites disappointing production as well as soft full-year guidance — due to the slowdown at its Del Torro site and continued declines at La Parilla — for his ratings change. Moreover, he believes the company is now being forced to play catch up after years of low exploration spending.
The stock is now off 21% over the past six months versus a loss of 11% for the S&P/TSX Capped Materials Index.
The bottom line
There you have it, Fools: three recently downgraded stocks worth checking out.
As always, they aren’t formal sell (or buy) recommendations. The track record of professional analysts is mixed, so plenty of your own due diligence is still required.
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Fool contributor Brian Pacampara owns no position of any the companies mentioned.