Wall Street’s lowest-rated stocks have turned into this year’s best performers, a sign that analysts who underestimated the U.S. economy will boost their recommendations and trigger even bigger gains in equities.
Huntington Bancshares Inc., the regional lender in Columbus, Ohio, had twice as many “sell” ratings as “buys” in December and jumped 66 percent this year for the fourth- largest advance in the Standard & Poor’s 500 Index. Eastman Kodak Co. and Sunoco Inc. have gained more than 20 percent after more than 30 percent of the analysts covering them at the start of the year recommended getting rid of the shares.
Companies most dependent on U.S. growth have the highest proportion of “sell” ratings even as economists predict the fastest expansion since 2004. Banks, property developers and automakers rallied 12 percent on average this year. Investors say the bears will capitulate, providing the next catalyst for more stock gains.
“The best kind of company to own is the one where the vast majority of analysts are negative but you see things turning around,” said Thomas Wilson, managing director of the institutional investments and private client group at Brinker Capital, which manages about $9 billion from Berwyn, Pennsylvania. “I don’t really want to own the stock that has nothing but favorable ratings because the expectations are so high.”