Proceed With Caution: Here Are 3 Fresh Downgrades From Bay Street

These three downgraded stocks, including Sun Life Financial Inc. (TSX:SLF)(NYSE:SLF), might be too dangerous for you to handle.

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Hello again, Fools. I’m back to highlight three stocks that have been recently downgraded by Bay Street. While analyst opinions should always be viewed with a skeptical eye, downgrades can often call our attention to risks we might’ve been overlooking.

For value investors, they can even be a source for contrarian buy ideas.

Without further ado, let’s get to it.

Feeling unwell

Leading off our list is Jamieson Wellness (TSX:JWEL), which was downgraded by Canaccord Genuity from “buy” to “hold” on Thursday. Along with the downgrade, Canaccord analyst Derek Dley lowered his price target to $23 (from $26), representing about 22% worth of upside from where it sits now.

Jamieson is set to release its Q4 results later this month, but Dley sees a challenging near-term outlook. Specifically, he thinks that the challenges related to Jamieson’s Specialty Brand business will take a couple of quarters to smoothen out. Due to these hurdles, Dley says that Jamieson’s full-year 2019 guidance may come in below its medium-term growth targets.

That said, with Jamieson already down 12% in 2019 — versus a gain of 10% for the S&P/TSX Capped Consumer Staples Index — the bearishness might already be baked in.

Home on 

Next up is Home Capital Group (TSX:HCG), which was downgraded by Raymond James from “outperform” to “market perform” on Thursday. Along with the downgrade, Raymond James analyst Brenna Phelan maintained her price target of $18.50 per share, representing about 16% worth of upside from where the stock sits now.

Raymond James upgraded Home Capital following its big December sell-off, but Phelan thinks now is a good time to head back to the sidelines. Negative housing data, combined with tighter regulatory liquidity requirements, will likely weigh on the shares over the short-term according to Phelan. Moreover, with the stock having rallied recently, the risk/reward trade-off isn’t ideal.

The shares are already up 8% in 2019 — in line with the S&P/TSX Capped Financial Index — so being cautious makes a tonne of sense.

Not-so-sunny skies

Rounding out our list is Sun Life Financial (TSX:SLF)(NYSE:SLF), which was downgraded by Scotiabank from “sector outperform” to “sector perform” on Wednesday. Along with the downgrade, Sun Life analyst Sumit Malhotra lowered his price target to $53 (from $58), representing about 12% worth of upside from today’s prices.

Malhotra thinks that Sun Life’s valuation is a bit stretched at this point. Malhotra expects constrained EPS growth from Canadian life insurers, in general, but said Sun Life’s P/E premium makes it a particularly good candidate to “take relative profits” on.

Malhotra’s 2019 estimate for Sun Life is 30% below the consensus.

Sun Life shares are still off 8% over the past six months — versus a loss of 3% for the S&P/TSX Capped Financial Index — and it boasts a juicy dividend yield of 4%, so it’s worth watching.

The bottom line

There you have it, Fools: three recently downgraded stocks that you might want to keep an eye on.

As always, they aren’t formal sell (or contrarian) recommendations. Bay Street’s long-term track record is notoriously mediocre, so plenty of due diligence on your part is still required.

Fool on.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Brian Pacampara owns no position in any of the companies mentioned.   

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