A Great Way To Find "Buy Low" Stocks
Buy low, sell high.
That’s the name of the game.
And it’s not going to change anytime soon.
That’s why today we’re going to look at one of the best ways to find stocks to “buy low.”
True Contrarians Only
This is one of the best starting points to find “buy low” stocks you will ever find.
It starts with Wall Street’s army of analysts.
Most long time investors know that Wall Street’s analysts are both an extremely positive and pessimistic community in the world.
They are overwhelmingly positive when it comes to “buy” and “hold” recommendations.
Over the last five years analysts have had “buy” or “hold” ratings on 94% of stocks according to FactSet Research.
Just 6% of stocks have “sell” ratings.
That's extremely bullish for the overall analyst community and shows how positive they can be.
When it comes to earnings though, they couldn’t be more pessimistic.
Every earnings period 70% or so of stocks beat expectations.
There are many reasons for this flaws, conflicts of interests, etc., but our focus on the rare “sell” ratings of the stock.
Less than 6% of all official analyst ratings are “sell.”
A stock has to be really in the dumps to earn a “sell” rating.
And, sometimes, that’s the best time to buy.
Let’s review one recent example.
Great Moments In "Analysting"
We’ve covered the epic rise and calamitous collapse of Carvana (CVNA) in our multiple warnings on EV stocks and auto stocks in general.
Carvana stands out for its truly epic run-up during the pandemic and equally epic decline since then.
Here’s the Carvana stock price chart over the last 10 years.
It tells most of the story:
For today’s review, we don’t want to focus on Carvana.
Instead, our focus is on the analysts who cover it.
Specifically, the analyst at Wedbush Morgan who covers Carvana.
In October 2021, Wedbush upgraded the stock from a “Neutral” to “Outperform” (that’s basically a move from “Hold” to “Buy”).
Shares were right around $280 at the time and just starting to fade a bit.
The stock continued to fade and then outright fall.
The next change in rating we could find from Wedbush didn’t come until October 2022, a year later.
At that time Carvana’s shares were officially downgraded from “Outperform” to “Neutral.”
Of course, the stock had fallen from $280 when it was upgraded to $17 – a 94% drop.
But then it got even worse.
Carvana shares continued to slide into December 2022.
When the stock fell all the way to $7, Wedbush updated its recommendation to the equivalent of “sell.”
For review, here’s the full run.
It started out as a “Buy” at $280. Then to “Hold” at $17. Then to “Sell” at $7 per share.
In percentage terms, that’s a 97.5% drop from “Buy” to “Sell.”.
Now, here’s the key.
This happens all the time.
Carvana may be a buy (although it probably isn’t except for a trade), but it’s definitely low.
So are the other “sell” rated stocks in the market.
There are many which are just out of favor and after the analysts say “sell,” basically, you’ve hit the point where everyone who is going to sell has sold.
And that’s not the best case for a stock to rebound, but it’s a point where there is a lot less downside risk than capital appreciation potential.
