Billionaire Steve Cohen abandons these 2 stocks; Should you?
Investors are always on the lookout for signals to help them make sound investment decisions, and one obvious way to go is to follow in the footsteps of Wall Street’s most successful stock pickers.
Some like hedge fund manager Steve Cohen. The billionaire made his fortune using high-risk, high-reward trading strategies and currently runs hedge fund Point72 Asset Management, a company that has $21.8 billion in assets under its wing.
But it’s not just the assets under his management that make Cohen a go-to source for investment advice. A successful investor will also know when the time is right to shed underperformers from the portfolio; recently, Cohen said goodbye to a pair of misfires.
And it looks like he’s not the only one who thinks those names aren’t worth investors’ time. According to the TipRanks database, it looks like Wall Street’s panel of pundits aren’t too keen on these stocks either. Let’s find out why.
First, we will focus on Xerox, the famous printing company. Founded in 1906, Xerox is synonymous with the photocopier market. Today, this Fortune 500 company provides print and digital document products and services in 160 countries. Xerox also offers graphics and production communications solutions, IT services, network infrastructure and a host of managed IT solutions, such as product technical support, engineering services and robotic process automation for the industry. commercial.
Like so many others, Xerox was hit by the double whammy of inflation and supply chain issues and these played their part in the company’s performance in the second quarter. Sales fell about 3% year-over-year to $1.75 billion, although they were up about 1% at constant exchange rates. Macroeconomic conditions affected gross margins, which contracted 370 basis points from the same period last year to 31.9%. Ultimately, adj. EPS of $0.13 beat analysts’ forecasts of $0.08, but that figure was lower than the $0.47 in 2Q21.
Clearly, Steve Cohen thinks it’s time to bail out. In the second quarter, Point72 sold its position of 1,009,900 shares.
It’s a stance that Credit Suisse’s Shannon Cross also takes, noting the decline in yields in the post-pandemic era of light offices.
“The pandemic has significantly impacted office print volumes, which we expect to recover to just 80% of 2019 levels before returning to single-digit declines,” Cross explained. “About 80% of Xerox revenue is recurring (funding, supplies, services); therefore, contract renewals are key to slowing revenue decline (managed print contracts and leases typically last three to five years). For renewed contracts, we expect customers to renegotiate terms to reflect lower usage and hardware requirements. For example, companies are placing more small A4 printers in offices, replacing what was historically one or two large A3 copiers per floor that require more comprehensive service contracts.
As a result, Cross rates Xerox shares as underperforming (i.e. sold) while his price target of $14 suggests the stock will drop 19% over the coming year. . (To see Cross’s track record, Click here)
Looking at the consensus breakdown, the bears have it. Based on 3 sells received in the last three months, the word on the street is that XRX is a strong sell. The average target is $14, the same as Cross’s target. (See Xerox inventory forecast on TipRanks)
Now let’s take a look at Gap, one of the world’s leading retailers. The company specializes in clothing, although it also offers many accessories and personal care products. Gap has a collection of brands, which includes Banana Republic, Old Navy and Athleta. Products are sold through company-owned and online stores, as well as through franchise stores and catalogs. At the end of last year, Gap had 2,835 directly operated stores and 564 franchise stores.
Almost every industry has felt the impact of the slowing global economy and Gap is no different. In the recently released second quarter report, revenue fell about 8% year-over-year to $3.86 billion, though that figure was $40 million higher than Street’s expectations. . Same-store sales fell 10% from the same period a year earlier, while online sales fell 6%. That said, the company managed to post a surprising profit, as adj. EPS of $0.08 is $0.10 higher than analysts’ forecast of -$0.02.
However, citing the current CEO transition and fragile macro climate, the company removed its outlook for fiscal year 2022 from the table.
It’s clear that Cohen thinks there’s too much uncertainty here; Point72 sold its position of 592,585 shares during the second quarter.
Morgan Stanley’s Alex Straton notes the beats in the latest quarterly statement, but she doesn’t think they indicate a significant change in the company’s fortunes. In fact, the analyst thinks there are simply too many negative indicators at play.
“GPS doesn’t have a leader at the helm right now, its Old Navy and Athleta jewelry divisions aren’t functioning, and inventory is bloated and will take time to scale,” she explained. . “At the same time, while the absence of a 2022e EPS bar may temporarily alleviate some inventory pressure, 2023e EPS estimates could be too high. As such, negative EPS revisions are possible and likely. based on our analysis, which in our space often runs into stock drops.
Based on all of the above, Straton rates Gap as underweight (i.e. sell) and gives the stock a price target of $8. The figure suggests the stock will change hands at a 15% discount within a year.
And what about the rest of the street? 1 pundit remains positive, 10 remain on the sidelines, but with 6 more sells, analyst consensus rates this stock as a moderate sell. Based on the average target of $9.27, the current trading price is about right. (See GPS stock forecast on TipRanks)
A look at the consensus breakdown doesn’t inspire much confidence either. The consensus holding rating for Gap stock is based on a single buy versus 10 hold and 5 sell. Over the next 12 months, the shares are likely to remain range-bound as the average price target stands at $9.47. (See GPS stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.