Buyer Beware: 3 Stocks Goldman Sachs Recently Downgraded The Federal Reserve's aggressive monetary tightening to fight multi-decade-high inflation, and the rising odds of a recession, are expected to keep the stock market under pressure for the foreseeable future....
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The Federal Reserve's aggressive monetary tightening to fight multi-decade-high inflation, and the rising odds of a recession, are expected to keep the stock market under pressure for the foreseeable future. Therefore, fundamentally weak stocks could witness a significant retreat. Hence, Goldman Sachs has recently downgraded The Travelers Companies (TRV), Starry Group (STRY), and Kubota (KUBTY). So, let's look closely at these stocks.
Market conditions are currently strewn with macroeconomic and geopolitical challenges. Since the beginning of the year, the major equity market indexes have faced substantial selling pressure on investors' concerns about aggressive interest rate increases by the Federal Reserve to tame multi-decade-high inflation, supply disruptions arising from the Ukraine-Russia war, rising energy and commodity prices, and the possibility of a recession.
The U.S. consumer price index moderated to 8.3% in April after advancing 8.5% in March, its highest level in 40 years. Economists believe the May CPI will be flat to April. The May jobs report released last week has all but put paid to expectations of a pause in the Fed's monetary policy tightening. Citi Personal Wealth Management's Head of the investment strategy Shawn Snyder said of the May jobs report, "It's telling us the economy is in fairly good shape, which is good news, but when viewed in the context of what it means for the Federal Reserve and tightening monetary policy, it likely makes them more confident they can continue to tighten. That comes through as a bit of a negative for investors because they are hoping for the Fed to pause later this year."
The uncertain market conditions may ultimately be troublesome for fundamentally weak stocks. As such, Goldman Sachs has recently downgraded the stocks of Travelers Companies, Inc. (TRV), Starry Group Holdings, Inc. (STRY), and Kubota Corporation (KUBTY).
The Travelers Companies, Inc. (TRV)
New York City's TRV provides a range of commercial and personal property and casualty insurance products and services to businesses, government units, associations, and individuals. It operates through three segments: Business Insurance, Bond & Specialty Insurance, and Personal Insurance. On June 3, 2022, Goldman Sachs analysts downgraded TRV to Sell from Neutral.
TRV's total revenues have increased 5.9% year-over-year to $8.80 billion for the first quarter, ended March 31, 2022. The company's net investment income declined 9.1% year-over-year to $637 million. Also, its combined ratio came in at 91.3%, compared to 96.6% in the year-ago period. In addition, its net income increased 38.8% year-over-year to $1.01 billion.
Analysts expect TRV's EPS for the quarter ending June 30, 2022, to decrease 43.2% year-over-year to $1.96. The stock has gained 14.2% in price year-to-date to close the last trading session at $178.64.
Starry Group Holdings, Inc. (STRY)
Boston's STRY operates as a next-generation licensed fixed wireless technology developer and internet service provider. The company is deploying gigabit-capable broadband to the home using its hybrid fiber-fixed wireless technology. On June 2, 2022, Goldman Sachs analysts downgraded STRY to Neutral from Buy.
For its fiscal first quarter, ended March 31, 2022, STRY's revenues increased 62.9% year-over-year to $7.37 million. The company's net loss widened 30.6% year-over-year to $53.63 million. Also, its loss per share widened 14.1% year-over-year to $1.29. In addition, its adjusted EBITDA loss widened 27.5% year-over-year to $27.80 million.
STRY's EPS is expected to remain negative for fiscal 2022 and 2023. Over the past year, the stock has declined 28.8% in price to close the last trading session at $7.13.
Kubota Corporation (KUBTY)
Headquartered in Osaka, Japan, KUBTY provides agricultural machines, engines, and construction machines. The company operates in three business segments. Its Machinery segment manufactures and sells agricultural machines and products, while its Water & Environment segment manufactures and sells pipe-related products. Its Others segment provides logistics and financial services, roofing materials, and exterior wall materials. On June 1, 2022, Goldman Sachs analysts downgraded KUBTY to Neutral from Buy.
KUBTY's revenue increased 10.3% year-over-year to ¥593.22 billion ($4.47 billion) for the first quarter ended March 31, 2022. The company's operating profit declined 14.6% year-over-year to ¥66.37 billion ($0.50 billion). Its net income decreased 4.7% year-over-year to ¥49.59 billion ($0.37 billion). And its EPS came in at ¥41.33, representing a 4% decline year-over-year.
Analysts expect KUBTY's EPS and revenue for its fiscal 2022 to decline 8.2% and 7.2%, respectively, year-over-year to $6.08 and $18.55 billion. Over the past year, the stock has declined 16% in price to close the last trading session at $94.66.
TRV shares rose $0.11 (+0.06%) in premarket trading Wednesday. Year-to-date, TRV has gained 14.80%, versus a -12.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master's degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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