“After being vocal bulls on COF for the entirety of 2020 and the majority of this year, we now believe that the risk/reward trade-off for the stock is skewed to the downside, and we recommend taking profits here,” Baird’s David George and Gus Vanevenhoven said.
Capital One shares are up 77.9 percent this year, compared to the S&P 500′s 20.1 percent gain.
“After significant outperformance, put COF back in your wallet,” the analysts advised.
Capital One was downgraded from neutral to underperform by Baird.
According to Baird, good news is already priced into the stock as investors anticipate an economic recovery. According to Baird, the stock is trading at peak levels when compared to historical valuations.
“While we like the Cap One business model, we are increasingly concerned that investors are paying a peak multiple for peak earnings,” the analysts wrote.
Dave & Buster’s stock
Stifel downgraded Dave and Buster’s from a buy to a hold. The firm also reduced its 12-month price target for the stock from $58 to $40. The new price target is only 4.5 percent higher than the closing price of $38.28 on Friday.
According to Stifel’s analysis of mobile location data, visitation trends at casual dining chains such as Olive Garden, Texas Roadhouse, and Chili’s peaked in mid-July and have since slowed. Dave & Buster’s should suffer the same fate.
Despite the stock’s strong performance in 2021, Stifel predicts that future growth will be more difficult to achieve.
“At this point, we believe that the incremental buyer of the stock will need to underwrite the company’s long-term unit growth potential, which we struggle to argue is a compelling thesis,” O’Cull said.
Avoid these stocks
Wolfe Research has advised investors this week of avoiding these hazardous companies in your portfolio.
The research firm examined second-quarter financial results to identify potential underperformers. Earnings quality is measured by Wolfe Research using a variety of factors such as cash flow, asset growth, tax rate, and others.
“Our quarterly earnings quality (NASDAQ: EQ) score is an objective way to identify potential accounting-related short ideas and as a risk tool to avoid potential portfolio blow-ups,” according to the note.
The firm identified large cap companies — those with a market cap of at least $3 billion — that appeared in the bottom 20% of its earnings quality score. Analysts also discovered names with high short interest relative to the company’s sector in that pool.
“The combination of low earnings quality (EQ) and high short interest is our most confident cohort of stocks to avoid,” the analysts wrote.
Short selling is when an investor predicts that the value of a stock will fall. As a result, the investor borrows shares and then sells them at market value. If the stock price continues to fall, the short seller can repurchase the shares at a lower cost and profit.
According to Wolfe Research, Boston Beer Company is a risky stock. The brewery’s stock has been under pressure this year, falling 41% in 2021. Cowen recently downgraded the stock, citing an expansion of a downturn in the spiked seltzer category. In its most recent earnings call, Boston Beer Company also warned of a slowing seltzer market.
Beyond Meat is one of the stocks that is expected to underperform the market. Its stock has dropped nearly 15% in the last three months, and 20% of its shares have been shorted. This week, Argus downgraded the alternative meat company. Beyond Meat appears to be on track for disappointing results in the near term, according to the firm.
AMD is also on Wolfe Research’s list. Shares of the chipmaker have outperformed the S&P 500 this year, but some market participants believe the stock will fall. Tony Zhang, chief strategist at OptionsPlay, said earlier this month that he believes the stock will fall by nearly 25%.
Other stocks identified by Wolfe Research as having a high risk of collapsing include home furnisher RH, oil company Baker Hughes, and residential solar company Sunnova Energy.