June has witnessed its fair share of analyst stock downgrades, leading investors to approach the market cautiously.
Investor sentiment can be as unpredictable as the wind, especially in the fast-paced world of Wall Street. Making investment decisions under such circumstances can feel overwhelming.
Stay ahead of the game by staying informed on the latest developments and closely monitoring high-risk stocks that have recently received downgrades.
In this ever-changing landscape, it’s prudent for investors to avoid these stocks that have fallen out of favor. Analyst stock downgrades can serve as a warning sign, indicating potential pitfalls and challenges ahead.
By identifying stocks with Wall Street downgrades, you can make informed decisions about your investment portfolio and protect your hard-earned capital.
While downgrades may bring negative connotations, they also present opportunities for savvy investors to dig deeper and identify undervalued gems. It is imperative to exercise prudence and undertake comprehensive research prior to making any investment choices.
| TGT | Target | $132.39 |
| DOCN | DigitalOcean Holdings | $39.04 |
| INFY | Infosys | $15.47 |
Target Corp (TGT)
Target (NYSE:TGT), the renowned retail giant, recently faced a wave of setbacks as several analysts issued stock downgrades, triggering a downward spiral in its market value.
As Wall Street’s attention turned to stocks with downgrades, Target Corp found itself among the list of high-risk stocks to avoid in June. These recent developments have labeled the company as one of Wall Street’s least favorite stocks.
Target is currently grappling with various obstacles, raising concerns about its short-term sales performance. Despite improving for two consecutive quarters, the company’s stock faces headwinds, including retail theft, which might impede its progress.
While Target’s dividend seems secure, I still advise caution because of prevailing uncertainties.
Target’s stock price has experienced a significant decline of 12.20% since the start of the year. The company has encountered challenges related to organized retail theft, resulting in an estimated profit shrinkage of $500 million in 2022. The retail industry has suffered losses of around $100 billion in 2021 due to such theft.
Cautious consumer behavior driven by recent inflation has affected sentiment toward retail. Individuals are now prioritizing essential items over larger purchases like furniture and apparel.
When evaluating the safety of Target’s dividend, it is important to acknowledge the company’s extensive track record of consistently raising dividends over time.
However, its free cash flow yield hit a five-year low in January 2023. Although the current dividend yield of 3.30% appears sustainable, future increases may be conservative in the short term.
DigitalOcean Holdings (DOCN)
DigitalOcean Holdings (NYSE:DOCN), the small-scale cloud platform provider, has been on a tumultuous journey since its initial public offering. Despite a strong start, with an opening price of $41.50 and a closing price of $42.50 on its first day of trading, the stock experienced extreme volatility.
During the frenzy surrounding growth and meme stocks, DigitalOcean soared to a record high of $130.26 on November 16, 2021, reaching an enterprise value of $13.6 billion. However, the inflated valuation proved unsustainable as rising rates took a toll on speculative growth stocks.
DigitalOcean provides cloud infrastructure platform services tailored to meet the needs of small and medium-sized businesses. While larger competitors like AWS, Azure, and Google Cloud dominate the cloud infrastructure market, DigitalOcean focuses on serving SMBs with smaller-scale server services known as “droplets.”
Detractors point out two significant challenges in DigitalOcean’s business model. First, larger cloud platforms have been encroaching into the SMB market, offering more affordable and scaled-down services.
The company acknowledges that these larger competitors possess “substantial competitive advantages.”
Secondly, profitability in the cloud infrastructure market requires substantial scale. Among the industry leaders, only AWS consistently generates profits.
Although DigitalOcean’s revenue growth is comparable to its larger counterparts, the company has yet to achieve profitability based on generally accepted accounting principles.
The company, already grappling with challenges such as slower customer acquisition, loss of revenue from the crypto market downturn, and business disruptions in Russia and Ukraine, now faces additional hurdles.
Analyst stock downgrades have placed it among the high-risk stocks with downgrades.
The latest downgrade comes from Piper Sandler, making it one of Wall Street’s least favorite stocks. As investors seek guidance on stocks to avoid in June, this company’s situation becomes increasingly precarious.
Infosys (INFY)
Infosys (NYSE:INFY) received a downgrade from Susquehanna Financial Group on Wednesday, triggering a dip in the stock price. While Infosys is a prominent tech giant with a powerful brand known for operational excellence, concerns have arisen. These concerns revolve around the erosion of its current competitive advantages due to architectural changes.
The analysts at Susquehanna Financial Group, acknowledging Infosys’ global standing, have lowered their estimates further below consensus and shifted their outlook to Negative, setting a $13 price target.
Their research shows that several factors are dampening demand. Macro-level conditions are causing delays in discretionary work across the industry, while integrating AI technology is slowing decision-making processes as customers navigate architectural changes.
Analysts have heard reports that the widespread availability and open sourcing of AI are exerting pricing pressure on vendors.
In this environment, customers seek shared savings, and it remains uncertain which supplier will be the first to reduce prices. In-sourcing could become a viable alternative if no significant price reductions occur.
While there is always a chance for progress in forming large deals beyond the analysts’ estimates, the risk to revenue has led them to adopt a Negative stance with a $13 price target.
In summary, it is essential to be cautious when considering Infosys as an investment option. The concerns raised by the analysts contribute to Wall Street’s cautious sentiment towards the stock.
On the publication date, Faizan Farooque did not hold (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.