On Wall Street, analyst downgrades often trigger alarm bells, leading to short-term declines in the share price of such downgraded stocks. Yet many investors regard those analyst downgrades as potential long-term stocks to buy. In fact, a 2012 study involving 11,000 global analysts revealed surprisingly low accuracy rates for target prices. Analysts were correct only 30% of the time with 12-month targets and a mere 18% with short-term forecasts.
In other words, downgrades frequently lead to a shift in the short-term market sentiment. Smart investors recognize that stocks that have fallen out of favor may hold untapped value. Therefore, let’s explore recent analyst downgrades that bring to the forefront three stocks to buy in the second half of the year.
Delek U.S. Holdings (DK)
When it comes to stocks to buy after analyst downgrades, downstream energy company Delek U.S. Holdings (NYSE:DK) stands out. Founded in 2001, this Tennessee-based company operates in the petroleum refining, logistics and retail segments.
In the first quarter of 2024, Delek U.S. Holdings reported an adjusted net loss of $26 million, or 41 cents per share. This performance marked an improvement from the previous quarter. That was driven primarily by the Refining segment, which saw a $117 million boost due to higher cracks and capture rates. The company ended the quarter with a cash balance of $753 million, reflecting a $69 million increase during the period.
However, on June 10, TD Cowen downgraded DK stock from hold to sell, slashing the price target from $25 to $20 due to potential underperformance concerns. Also, Wells Fargo (NYSE:WFC) and Piper Sandler (NYSE:PIPR) lowered their target prices in June, maintaining cautious outlooks.
DK stock has declined around 8% this year but offers a 4.2% dividend yield. The shares are trading at a discounted valuation level of 0.1 times sales and 33.3 times forward earnings. Meanwhile, analysts have set a 12-month median price target of $26 for DK stock, implying a more than 8% upside potential.
Roper Technologies (ROP)
Roper Technologies (NASDAQ:ROP) is a Florida-based tech firm renowned for its software and engineered products across multiple sectors. Roper’s portfolio includes management, diagnostic, and laboratory information management software, cloud-based financial analytics, and performance management software, among others.
ROP delivered robust Q1 results with a 14% increase in total revenue and an organic revenue growth of 8%. Also, management increased its full-year 2024 guidance for total revenue, organic revenue and adjusted EPS, reflecting the company’s confidence in its growth trajectory.
Despite robust earnings, Roper Technologies wasn’t immune to analyst downgrades. On June 13, Wolfe Research changed its rating from peer perform to underperform, citing valuation concerns. Yet, others on Wall Street highlight that strategic acquisitions, like Procare and a disciplined capital deployment strategy have positioned the company for future expansion.
ROP stock has gained nearly 3% year-to-date (YTD). Shares trade at a forward price-to-earnings (P/E) ratio of 30.1x and price-to-sales (P/S) ratio of 9.4x. Analysts project a 12-month median price target of $618.50 for ROP stock, a potential 10% upside from current levels.
W. R. Berkley (WRB)
Insurer W.R. Berkley (NYSE:WRB) has a market capitalization of over $20 billion, establishing itself as a significant entity in the insurance sector.
W.R. Berkley’s Q1 of 2024 results impressed analysts, with a 50.4% year-over-year (YOY) surge in net income to $442 million. Adjusted diluted EPS rose to a remarkable $1.56 from $1 in the year-ago quarter. However, the company faced a setback with its investment fund performance, swinging from a $2.18 million income to a $29.35 million loss YOY. This led analysts from RBC Capital of Royal Bank of Canada (NYSE:RY), Wells Fargo and Truist Financial (NYSE:TFC) to cut their target prices.
In addition, Goldman Sachs (NYSE:GS) downgraded WRP stock from buy to neutral, citing concerns over potential market volatility and regulatory changes. This highlights uncertainties related to claim cost trends and litigation risks in the insurance sector. However, W.R. Berkley remains focused on profitability and shareholder value. A recent 3-for-2 stock split further demonstrates their commitment.
Despite downgrades, WRB shares have delivered a 13% return since January. With a forward P/E ratio of 13.7x and P/S of 1.7x, the stock appears attractively valued. Finally, Wall Street projects a 12-month median price target of $87.10, implying an 8.6% potential upside.
On the date of publication, Tezcan Gecgil did not have (either 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.
