Why Wells Fargo’s Bearish List Of 50 Stocks To Sell Is Wrong

Last week, in what might mark the height of the stock market panic, Wells Fargo (WFC) named 50 stocks to short or avoid. The senior equity strategist is not alone in issuing an odd mix of bullish or bearish calls. Morgan Stanley (MS) issued 45 of its highest conviction stock picks that made little sense. Goldman Sachs strategist David Kostin picked stable stocks suitable for a tighter monetary policy environment.

Wells Fargo’s bearish list requires a closer review. Many of the stocks are down so much already. Advising investors to sell those stocks is too late a call. The analyst based the weak quant score on longer-term price momentum. Any reader who looked at the stock chart will see the steady downtrend that began late last year.

Percentage Loss from YTD High

Starting with the stocks down 50% or more are:

Ticker	Company	Ticker	YTD Return	Sentiment Score	Industry Group
NFLX	Netflix	(NFLX)	-70.90%	58	Media – Diversified
ETSY	Etsy	(ETSY)	-67.10%	13	Retail – Cyclical
ALGN	Align Tech	(ALGN)	-64.30%	14	Medical Devices & Instruments
PYPL	PayPal Holdings	(PYPL)	-61.30%	14	Credit Services
CZR	Caesars Entertainment	(CZR)	-57.60%	10	Travel & Leisure
CDAY	Ceridian HCM Holding	(CDAY)	-56.90%	43	Software
EPAM	EPAM Systems	(EPAM)	-55.80%	68	Software
CCL	Carnival	(CCL)	-52.30%	30	Travel & Leisure
META	Meta Platforms	(META)	-51.30%	56	Interactive Media
ILMN	Illumina	(ILMN)	-50.80%	49	Medical Diagnostics & Research

Data and Scores compiled from Stock Rover

Just as PayPal scored a 14/100 on sentiment, Seeking Alpha Premium graded the stock a D- on momentum. The selling momentum will eventually peak. Short interest is only 1.97%. This suggests a low in the $50-$60 range from 2017 levels is unlikely. The stock has strong profitability (Grade A) and the forward price-to-earnings multiple of 18.7 times is unlikely to compress further.

Consumers will have more trouble paying back debt. Just as Affirm (AFRM) championed buy now, pay later, PayPal is introducing a similar offering. Pay Monthly will let consumers pay for large purchases of between $199 to $10,000 over up to 24 months.

In the media sector, which Wells Fargo classifies as communications, Netflix is worth holding from here. The stock’s low price already reflects the company’s subscription growth slowdown. It may need to re-think cracking down on password sharing. In addition, it should consider canceling plans to offer an ad-supported tier. Instead, it would increase customer satisfaction by cutting its content production budget.

Meta Platforms has so low a buying momentum that the stock trades at an incredibly low 12.4 times earnings. The company’s growth matured. User growth is declining. The company’s pivot to the metaverse will cost it billions of dollars in the next 10 years.

Meta is showing signs of cost controls on unproven projects. For example, it paused the development of the smartwatch on June 9, 2022. Meta must monitor the uptake of Oculus in 2022. Should user activity slow, it should lower its expenses in building the metaverse platform.

Stocks Down 25%-50%

Ticker	Company	Ticker	YTD Return	Sentiment Score	Industry Group
MRNA	Moderna	(MRNA)	-49.60%	66	Biotechnology
IPGP	IPG Photonics	(IPGP)	-48.60%	47	Semiconductors
MTCH	Match Group	(MTCH)	-48.20%	16	Interactive Media
DISH	DISH Network	(DISH)	-47.30%	9	Telecommunication Services
PENN	Penn National Gaming	(PENN)	-47.20%	10	Travel & Leisure
FBHS	Fortune Brands Home	(FBHS)	-45.10%	59	Furnishings, Fixtures & Appliances
NCLH	Norwegian Cruise Line	(NCLH)	-44.90%	33	Travel & Leisure
TROW	T. Rowe Price Group	(TROW)	-44.70%	52	Asset Management
SWK	Stanley Black & Decker	(SWK)	-44.60%	16	Industrial Products
ARE	Alexandria Real Estate	(ARE)	-40.60%	63	REITs
QRVO	Qorvo	(QRVO)	-39.20%	55	Semiconductors
DIS	Walt Disney	(DIS)	-39.10%	20	Media – Diversified
SPG	Simon Property Group	(SPG)	-38.40%	68	REITs
XRAY	Dentsply Sirona	(XRAY)	-36.50%	19	Medical Devices & Instruments
ECL	Ecolab	(ECL)	-36.40%	30	Chemicals
PPG	PPG Industries	(PPG)	-35.70%	76	Chemicals
MKTX	MarketAxess Holdings	(MKTX)	-35.50%	29	Capital Markets
EL	Estee Lauder Companies	(EL)	-35.50%	38	Consumer Packaged Goods
SYF	Synchrony Financial	(SYF)	-34.90%	65	Credit Services
BA	Boeing	(BA)	-32.00%	83	Aerospace & Defense
GE	General Electric	(GE)	-30.10%	69	Industrial Products
VNO	Vornado Realty	(VNO)	-30.10%	45	REITs
DD	DuPont de Nemours	(DD)	-29.70%	72	Chemicals
AWK	American Water Works	(AWK)	-29.60%	30	Utilities – Regulated
IVZ	Invesco	(IVZ)	-28.70%	54	Asset Management
CLX	Clorox	(CLX)	-28.60%	53	Consumer Packaged Goods
AAL	American Airlines Group	(AAL)	-28.00%	39	Transportation
AVY	Avery Dennison	(AVY)	-27.90%	28	Industrial Products

In the biotechnology sector, Moderna trades at a 3.76 times P/E. The covid vaccine supplier is already down by 74% from its all-time high of $497.49. Today, investors are betting that the government will not implement an annual vaccination program.

To prevent another Delta variant, many countries are likely to offer an annual vaccination against Covid. In addition, Moderna is developing a bivalent vaccine to protect people against Omicron.

Investors could buy MRNA stock as a hedge against the risk of another lockdown. More likely, a rising spread in yet another variant would increase investor buying in this beat-up firm.

The only agreeable stock that Wells Fargo says to avoid is General Electric. GE reverse-split its stock for no reason. It sold its profitable and growing healthcare sectors. Investors have only poor-performing assets left over. As interest rates rise, GE’s cost for servicing nearly $30 billion in debt will rise.

Clorox is a consumer packaged goods firm that investors should avoid. The company claims inflation is not the biggest issue it is dealing with. Chief Financial Officer Kevin Jacobsen then said that it typically has $50 million of inflation. Now, it is dealing with 10 times the level of inflation, hurting margins this year.

In the asset management sector, T. Rowe Price is worth considering. Just as Blackstone (BX) is down as assets depreciate, a market rebound would send these firms sharply higher. Investors are fickle. The moment stocks rally, investors will buy funds.

Stocks Down 25% to Positive 27.5% Year-to-Date

Wells Fargo’s bearish call on the best energy stocks is puzzling. China’s Covid lockdown might hurt energy demand. A mild global recession in 2023 may also curb energy consumption. But Williams Companies (WMB) pays a dividend that yields 5.72%. Schlumberger (SLB) outlined its long-term new energy growth plans. This will expand its total addressable market beyond energy. The firm also increased its dividend by 40%.

Ticker	Company	Ticker	YTD Return	Sentiment Score	Industry Group
EQIX	Equinix	(EQIX)	-24.50%	80	REITs
PNC	PNC Financial Services Group	(PNC)	-22.10%	85	Banks
C	Citigroup	(C)	-21.60%	70	Banks
AES	AES	(AES)	-19.60%	69	Utilities – Regulated
WMT	Walmart	(WMT)	-17.60%	87	Retail – Defensive
AA	Alcoa	(AA)	-17.10%	75	Metals & Mining
BIIB	Biogen	(BIIB)	-15.90%	26	Drug Manufacturers
PPL	PPL	(PPL)	-14.20%	75	Utilities – Regulated
PNW	Pinnacle West Capital	(PNW)	-4.40%	68	Utilities – Regulated
LW	Lamb Weston Holdings	(LW)	4.10%	41	Consumer Packaged Goods
KMI	Kinder Morgan	(KMI)	4.30%	81	Oil & Gas
WMB	Williams Companies	(WMB)	17.00%	85	Oil & Gas
SLB	Schlumberger	(SLB)	23.20%	38	Oil & Gas
PSX	Phillips 66	(PSX)	27.50%	44	Oil & Gas

Kinder Morgan shares offer income investors a 6.92% yield. In May 2022, its Gulf Coast Express Pipeline will increase capacity by nearly 570M cf/day. Its target in-service date is December 1, 2023.

Even after an unexpected sell-off last Friday, June 17, 2022, WMB and SLB are up 23% and 27.5%, respectively.

Among the energy stocks mentioned, Phillips 66 is the most attractive. It is focused on transforming the organization. It will simplify its working structure and achieve higher margins.

In the last quarter, Phillips 66 grew its cash from operations by $1.1 billion. This covered $370 million in capital spending and $404 million for the dividend.

In financials, the Wells Fargo analyst called Citigroup stock to avoid or sell. Understandably, it could not call its employer’s stock a sell, which readers should consider doing.

Citi’s only blemish is its exposure to Russia. The $50 million ‘fat finger’ trade is unfortunate.

To bolster international growth, Citi will hire 3,000 staff for its Asia institutional business. It will add more than 4,000 tech staff to embrace digital transformation.

Your Takeaway

Readers should exercise extra caution when digesting analyst stock lists. Looked at as holdings among a portfolio, the bearish calls make little sense. The report is also very late. Investors who did not sell six months ago have little reason to do so now.