24 Controversial S&P 500 Stocks, and Why They Are Worth Buying -- Barrons.com
DOW JONES & COMPANY, INC. 5:59 AM ET 6/16/2021
Symbol Last Price Change
AMD 80.2958down -0.1742 (-0.2165%)
CL 82.855down -0.415 (-0.4984%)
SLB 34.325up +0.135 (+0.3949%)
QUOTES AS OF 12:14:37 PM ET 06/16/2021
Al Root
Controversy about stocks usually points at risk, excessive volatility, and the potential for large losses, but it can also be an opportunity for investors with ironclad constitutions. Looking where others fear to tread is a time- tested strategy for uncovering value.
How deeply Wall Street disagrees on a stock is easy to measure, with what Barron's calls the bull-bear spread. The breadth of the gap between the highest stock-price target on the Street and the lowest, relative to the current price, offers an apples-to-apples metric.
Consider Tesla , a classic controversial stock. Today, the top target price for Tesla shares is $ 1,200 a share, from Piper Sandler analyst Alex Potter. That target is up almost 100% from recent levels and values Tesla at roughly $1 trillion. The low figure comes from GLJ Research analyst Gordon Johnson, whose target is $67 a share, valuing the company at roughly $60 billion, similar to Ford Motor (F).
The difference between the two calls is more than $1,100 a share and about 185% of the recent stock price of about $610 a share. The average bull-bear spread for stocks in the S&P 500 is roughly 50% of their current prices.
A year ago, buying controversy was a good idea. The 24 most controversial names in the S&P 500 as of June 2020, identified via a Barron's stock screen, have returned about 105% on average over the past 12 months. That is almost twice the average return of the typical S&P 500 stock. All 24 stocks are higher.
Uncertainty over how the pandemic would play out meant lots of controversy last year. The average bull-bear spread for the 24 most controversial stocks, in areas such as cruise operators, airlines, energy, and retailers. averaged more than 170% of the current stock prices.
Controversy in 2021 is a little lower. The average bull-bear spread for the 2021 list of the 24 most controversial S&P 500 stocks is about 120%, and the list of names is more diverse.
Companies that qualified include Tesla, Sherwin-Williams (SHW), Dish Network (DISH), ViacomCBS (VIAC), Penn National Gaming (PENN), Under Armour (UAA), Advanced Micro Devices(AMD) , Western Digital (WDC), ResMed (RMD), Freeport- McMoRan (FCX), Discovery (DISCA), Micron Technology (MU), American Airlines (AAL), Hanesbrands (HBI), Netflix (NFLX), Nov (NOV), L Brands (LB), Incyte (INCY), Colgate-Palmolive(CL) , Carnival (CCL), General Electric (GE), Schlumberger(SLB) , Twitter (TWTR) and Ball (BLL).
Some of this year's divergence in views is easy to understand. Tesla, for instance, is controversial because Wall Street is debating whether it should be valued so much more richly than other auto makers. Airlines are still recovering from their Covid-19 slump. And analysts don't agree over how well Netflix can stand up to mounting competition in streaming video.
Some controversy isn't that easy to understand. Barron's isn't sure, for example, why Wall Street is divided over paint (Sherwin), toothpaste (Colgate). and cans (Ball), but the spread is wide for each stock.
That lack of clarity links to a key point. Stock screens can be used to mine for potential ideas, but they aren't a full investment thesis. Each company needs to be evaluated on its own merits.
The controversy over the 2020 list has now died down as an improving economy has brightened the prospects of companies in a range of industries. The average bull-bear spread has fallen to below 100% of the current stock price as views have converged and the stocks have risen.
If the economy keeps improving, the current list of controversial stocks could also be higher at this time in 2022.
Write to Al Root at allen.root@dowjones.com
Al Root
Controversy about stocks usually points at risk, excessive volatility, and the potential for large losses, but it can also be an opportunity for investors with ironclad constitutions. Looking where others fear to tread is a time- tested strategy for uncovering value.
How deeply Wall Street disagrees on a stock is easy to measure, with what Barron's calls the bull-bear spread. The breadth of the gap between the highest stock-price target on the Street and the lowest, relative to the current price, offers an apples-to-apples metric.
Consider Tesla , a classic controversial stock. Today, the top target price for Tesla shares is $ 1,200 a share, from Piper Sandler analyst Alex Potter. That target is up almost 100% from recent levels and values Tesla at roughly $1 trillion. The low figure comes from GLJ Research analyst Gordon Johnson, whose target is $67 a share, valuing the company at roughly $60 billion, similar to Ford Motor (F).
The difference between the two calls is more than $1,100 a share and about 185% of the recent stock price of about $610 a share. The average bull-bear spread for stocks in the S&P 500 is roughly 50% of their current prices.
A year ago, buying controversy was a good idea. The 24 most controversial names in the S&P 500 as of June 2020, identified via a Barron's stock screen, have returned about 105% on average over the past 12 months. That is almost twice the average return of the typical S&P 500 stock. All 24 stocks are higher.
Uncertainty over how the pandemic would play out meant lots of controversy last year. The average bull-bear spread for the 24 most controversial stocks, in areas such as cruise operators, airlines, energy, and retailers. averaged more than 170% of the current stock prices.
Controversy in 2021 is a little lower. The average bull-bear spread for the 2021 list of the 24 most controversial S&P 500 stocks is about 120%, and the list of names is more diverse.
Companies that qualified include Tesla, Sherwin-Williams (SHW), Dish Network (DISH), ViacomCBS (VIAC), Penn National Gaming (PENN), Under Armour (UAA), Advanced Micro Devices(AMD) , Western Digital (WDC), ResMed (RMD), Freeport- McMoRan (FCX), Discovery (DISCA), Micron Technology (MU), American Airlines (AAL), Hanesbrands (HBI), Netflix (NFLX), Nov (NOV), L Brands (LB), Incyte (INCY), Colgate-Palmolive(CL) , Carnival (CCL), General Electric (GE), Schlumberger(SLB) , Twitter (TWTR) and Ball (BLL).
Some of this year's divergence in views is easy to understand. Tesla, for instance, is controversial because Wall Street is debating whether it should be valued so much more richly than other auto makers. Airlines are still recovering from their Covid-19 slump. And analysts don't agree over how well Netflix can stand up to mounting competition in streaming video.
Some controversy isn't that easy to understand. Barron's isn't sure, for example, why Wall Street is divided over paint (Sherwin), toothpaste (Colgate). and cans (Ball), but the spread is wide for each stock.
That lack of clarity links to a key point. Stock screens can be used to mine for potential ideas, but they aren't a full investment thesis. Each company needs to be evaluated on its own merits.
The controversy over the 2020 list has now died down as an improving economy has brightened the prospects of companies in a range of industries. The average bull-bear spread has fallen to below 100% of the current stock price as views have converged and the stocks have risen.
If the economy keeps improving, the current list of controversial stocks could also be higher at this time in 2022.
Write to Al Root at allen.root@dowjones.com
