All 45 sell-side analysts who cover Amazon.com rate the stock a “buy.” That is incredible, considering the shares trade for about 71 times the forward consensus earnings estimate, more than four times that of the benchmark S&P 500 Index.
How high are the forward price-to-earnings (P/E) ratios for other highly rated stocks? How risky might it be to follow the investing herd and jump in?
Tomi Kilgore wrote about the risks associated with such strong sentiment for Amazon AMZN, +0.86% as well as opportunities for short-term traders wishing to “play” the internet retail giant’s first-quarter earnings report Thursday after the stock market closes.
Among the S&P 500 SPX, -0.10% a “perfect” list of sell-side ratings is a rarity. Only one company besides Amazon is rated “buy” or the equivalent by all analysts polled by FactSet: Marathon Petroleum MPC, +1.70% has top ratings among all 19 analysts covering the company. Its shares trade at a forward P/E ratio of only 10.7. Marathon was recently included in this list from Barron’s: “10 stocks with safe, generous dividends.”
Reluctant to say ‘sell’
There is a reason why it is important to distinguish sell-side analysts (most of whom work for brokers who want their customers to buy shares) and buy-side analysts, who work for money managers. The sell-side tends to be bright and sunny: Only two companies among the S&P 500 have majority “sell” or equivalent ratings:
• Campbell Soup CPB, -0.92% Nine of 16 analysts rate the stock a “sell” or the equivalent. The shares trade at a forward P/E ratio of 15.8. Interestingly, the shares are up 20% this year (including reinvested dividends), following a 29% drop in 2018. As part of its effort to simplify its business, Campbell announced a deal to sell its Bolthouse Farms unit to Butterfly Equity for $510 million. Here’s a look at Campbell’s turnaround attempt and the results so far.
• Franklin Resources BEN, -0.56% The holding company of Franklin Templeton Investments is rated a “sell” or the equivalent by eight of 15 analysts polled by FactSet. The shares trade for 13.7 times the consensus forward earnings estimate. This is another recovery story so far in 2019, with the shares returning 20.5% after sliding 23% in 2018.
Looking for ‘perfect’ sets of ratings
If we expand our list to the S&P 1500 Composite Index, which includes the S&P 500, the Small-Cap 600 Index SML, -0.86% and the S&P 400 Mid-Cap Index MID, -0.83% there are 93 companies that all analysts consider a buy. That is a tremendous number. However, many are covered by a small number of analysts.
