Investors are always on the lookout for signals that will help them make sound investment decisions, and one obvious path to follow is in the footsteps of Wall Street’s most successful stock picks.
The likes of hedge fund manager Steve Cohen. The billionaire has made his fortune using high-risk, high-reward trading strategies and currently runs the hedge fund Point72 Asset Management, a firm that has $21.8 billion in assets under its wing.
But it’s not just his assets under management that make Cohen a go-to source for investment advice. A successful investor will also know when the time is right to exit any underperformers in the portfolio. Recently Cohen said goodbye to a couple of dudes.
And it seems he’s not alone in thinking these names aren’t worth investors’ time. According to the TipRanks database, it seems that Wall Street experts are not very interested in these stocks. Let’s find out why.
First, we’ll zero in on Xerox, the famous printing company. Founded in 1906, Xerox is synonymous with the copier market. Today, this Fortune 500 company provides print and digital document products and services in 160 countries. Xerox also offers graphic communications and production solutions, IT services, network infrastructure and a range of managed IT solutions including technology product support, engineering services and robotic process automation for the commercial sector.
Like many others, Xerox has been affected by the twin scourges of inflation and supply chain woes, and these played their part in the company’s second-quarter performance. Sales were down ~3% year-over-year to $1.75 billion, although they were up ~1% on a constant currency basis. Macroeconomic conditions impacted gross margins, which contracted 370 basis points year-over-year to 31.9%. In the bottom line, add. EPS of $0.13 beat analysts’ consensus of $0.08, but that figure was down from 2Q21’s $0.47.
Apparently, Steve Cohen thinks it’s time to bail out. In the second quarter, Point72 sold off its position of 1,009,900 shares.
It’s a stance shared by Credit Suisse’s Shannon Cross, noting the meager returns to the post-pandemic office era.
“The pandemic has significantly impacted office print volumes, which we expect to recover to only 80% of 2019 levels before returning to low single-digit declines,” Cross explained. “About 80% of Xerox’s revenue is recurring (financing, supplies, services). As such, contract renewals are key to slowing revenue decline (managed print contracts and leases are typically three to five years). For contracts that renew, we expect customers to renegotiate terms to reflect lower usage and hardware requirements. For example, companies are placing more small A4 printers across offices, replacing what was historically one or two large A3 copiers per floor that required more comprehensive service contracts.”
Accordingly, Cross rates Xerox shares an Underperform (i.e. Sell), while the $14 price target suggests the stock will decline 19% over the next year. (To follow the history of Cross, Click here)
Looking at the consensus breakdown, the bears have it. Based on the 3 sales received in the last three months, the word on the street is that the XRX is a strong sell. The average target is $14, the same as Cross’ target. (See Xerox stock forecast at TipRanks)
Let’s now take a look at Gap, one of the world’s leading global retailers. The company specializes in clothing, although it also offers many accessories and personal care products. Gap owns a collection of brands that includes Banana Republic, Old Navy and Athleta. Products are sold through company-owned stores and online, as well as franchise stores and catalogs. At the end of last year, Gap had 2,835 company-operated stores and 564 franchise stores.
Almost every industry has felt the impact of the global economic slowdown, and Gap is no different. In its recently released second-quarter report, revenue fell ~8% year-over-year to $3.86 billion, though that number was $40 million above Street expectations. Comparable sales were down 10% from the same period last year, while online sales were down 6%. Having said that, the company managed to register a phenomenal profit as adj. EPS of $0.08 came in $0.10 higher than the $-0.02 analysts were expecting.
However, citing the current CEO transition and the volatile macroeconomic climate, the company took its fiscal 2022 outlook off the table.
It is clear that Cohen thinks there is 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 doesn’t think they’re indicative of a material change in the company’s fortunes. In fact, the analyst believes there are too many negative indicators.
“GPS has no leader at the helm right now, Old Navy & Athleta jewelry divisions are underperforming and inventory is bloated and will take time to right size,” he explained. “At the same time, while the lack of 2022e EPS bar may temporarily ease inventory pressure, 2023e EPS estimates may be too high. As such, negative EPS revisions are possible and likely based on our analysis, which in our space is often met with falling stocks.”
Based on all of the above, Straton rates Gap an Underweight (i.e. Sell) and gives the stock a price target of $8. The number suggests the stock will change hands for a 15% discount in a year.
And what about the rest of the way? 1 expert remains positive, 10 remain neutral, but with 6 additional Sells, the analyst consensus rates this stock a moderate sell. According to the average target of $9.27, the current trading price is about right. (See GPS Stock Forecast on TipRanks)
A look at the consensus analysis doesn’t inspire much confidence either. Gap stock’s consensus Hold rating is based on one Buy versus 10 Holds and 5 Sells. Over the next 12 months, the shares are expected to remain range-bound given the average target price of $9.47. (See GPS Stock Forecast on TipRanks)
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Disclaimer: The views 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.