Red Alert: Here Are 3 Stocks That Bay Street Just Downgraded

These three downgraded stocks, including Husky Energy Inc. (TSX:HSE), might be too dangerous for you to handle.

| More on:

Hello, Fools. I’m back to highlight three stocks that have recently been downgraded by Bay Street. While we should always be skeptical of analyst opinions, fresh downgrades can often call our attention to risks that we may not have been considering.

For value investors, they can even be a good source of contrarian buy ideas.

So, without further ado, let’s get to it.

Husky cut

Kicking things off is Husky Energy (TSX:HSE), which BMO Capital Markets downgraded from outperform to market perform on Friday. Along with the downgrade, BMO lowered its price target on the stock to $19 (from $23), representing just 13% worth of upside from where the stock sits now.

Husky’s stock has rallied ever since dropping its hostile takeover bid for MEG Energy, so it might make sense to take some profits off the table.

“Given the outcome of the tender process, Husky will continue to focus on capital discipline,” said Husky CEO Rob Peabody.

Of course, with Husky shares still down 25% over the past six months — versus a loss of 17% for the S&P/TSX Capped Energy Index — BMO might be underestimating the stock’s turnaround potential.

Softening steel

Next up, we have Stelco Steel (TSX:STLC), which Goldman Sachs downgraded from buy to neutral last week. Along with the downgrade, Goldman analyst Matthew Korn lowered his price target on the stock to $20 (from $27), representing about 21% worth of upside from where the stock opened this morning.

While that upside still looks tempting, it may not be enough to compensate for Stelco’s many risks. According to Korn, the company “faces limitations” such as slumping sheet prices, North American trade uncertainty, and trading liquidity.

That said, with the stock now off 30% over the past six months — versus a loss of 11% for the S&P/TSX Capped Materials Index — and trading at a paltry forward P/E of 3.4, aggressive contrarians may want to go against Goldman on this one.

Majestic disappointment

Rounding out our list is First Majestic Silver (TSX:FR)(NYSE:AG), which BMO Capital Markets downgraded from market perform to outperform early last week. Along with the downgrade, RBC analyst Ryan Thompson lowered his price target to $8.25 (from $8.50), representing about 20% worth of upside from where the stock sits today.

Triggering the downgrade was poor Q4 results. Specifically, Thompson cites disappointing production as well as soft full-year guidance — due to the slowdown at its Del Torro site and continued declines at La Parilla — for his ratings change. Moreover, he believes the company is now being forced to play catch up after years of low exploration spending.

The stock is now off 21% over the past six months versus a loss of 11% for the S&P/TSX Capped Materials Index.

The bottom line

There you have it, Fools: three recently downgraded stocks worth checking out.

As always, they aren’t formal sell (or buy) recommendations. The track record of professional analysts is mixed, so plenty of your own due diligence is still required.

Fool on.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Brian Pacampara owns no position of any the companies mentioned.   

More on Energy Stocks

analyze data
Energy Stocks

Buy 8,850 Shares of This Top Dividend Stock for $2,000/Month in Passive Income

Let's do the math on what it would take to generate $2,000 a month in passive income from Enbridge (TSX:ENB)…

Read more »

oil and gas pipeline
Energy Stocks

Is TC Energy Stock a Good Buy?

TC Energy stock has a lot going for it, but there are also a few red flags to consider before…

Read more »

Canadian energy stocks are rising with oil prices
Energy Stocks

Is Canadian Natural Resources Stock a Good Buy?

CNRL is an energy giant with a market capitalization near $100 billion.

Read more »

A worker overlooks an oil refinery plant.
Energy Stocks

Is Baytex Energy Stock a Good Buy?

Baytex Energy is a TSX stock that has massively underperformed the broader markets in the past decade, but it trades…

Read more »

Pumpjack in Alberta Canada
Energy Stocks

Is Suncor a Buy for its 4.2% Dividend?

Suncor Energy (TSX:SU) has a 4.2% yield. Is it a buy?

Read more »

engineer at wind farm
Energy Stocks

Energy Stocks to Buy Now: Top Picks for Canadian Investors

These companies have a solid business model and growing cash flows to support higher dividend payments and share prices.

Read more »

Trans Alaska Pipeline with Autumn Colors
Energy Stocks

Is Enbridge Stock a Good Buy?

Enbridge provides a 6.5% dividend yield right now.

Read more »

Oil industry worker works in oilfield
Energy Stocks

Is Suncor Stock a Buy, Sell, or Hold for 2025?

Suncor stock looks undervalued as the company continues to increases cash flows, earnings, and shareholder returns.

Read more »