Is Halliburton Overhyped for 2012?
As this MarketWatch column points out, now is the time of year when Wall Street analysts offer their two cents on the best stocks to buy for the year ahead. However, after running the numbers, columnist Brett Arends cautioned that if history is any indicator, investors may be better off coming to their own conclusions for 2012.
Specifically, if you’d invested $10,000 in each of the 10 most beloved stocks (as measured by their number of “buy” or better ratings) on the S&P 500 Index (SPX) last year, “you’d be down 3.5%, even before trading costs and taxes,” says Arends. Furthermore, “Six of the ‘top 10 stocks’ actually lost you double digits,” while five of the 10 least-loved stocks (as measured by “sell” or worse ratings) actually rose year-over-year, outperforming a flat SPX.
That said, the author — with help from Thomson Reuters — listed Wall Street’s “top picks” of 2012, which included commodity titan Halliburton (HAL).
Contrarian Takeaway:
According to Zacks, HAL is, in fact, adored among the brokerage bunch, garnering a whopping 22 “strong buys” and three “buy” endorsements. For comparison, just two analysts offer up a lukewarm “hold” rating, and not one rates the stock a “sell” or worse. In the same vein, Thomson Reuters pegs the consensus 12-month price target on the equity at $53.83 — representing a steep premium of 53% to HAL’s closing price of $35.12 on Jan. 4.
Elsewhere, the options crowd is also optimistically aligned toward HAL. The security’s Schaeffer’s put/call open interest ratio (SOIR) of 0.66 indicates that calls comfortably outnumber puts among options slated to expire within three months. Plus, this ratio registers in just the second percentile of its annual range, suggesting that short-term options traders have rarely been more call-heavy on HAL during the past year.
From a fundamental and technical standpoint, though, the abundance of bullish bets seems somewhat out of place. For instance, HAL could be on the hook to cover the cost of cleaning up the 2010 Gulf of Mexico oil spill, if BP plc (BP) has anything to say about it. Technically, meanwhile, HAL has surrendered roughly 40% since peaking at $57.77 in July, ushered lower beneath its 10-week and 20-week moving averages.
From a contrarian perspective, the optimism surrounding HAL could leave the equity vulnerable in 2012. Should the stock continue to struggle on and/or off the charts, a mass exodus of bulls — in the form of downgrades, price-target cuts, or a reversal in sentiment in the options pits — could exacerbate the shares’ recent slide.
Andrea Kramer (akramer@sir-inc.com)
Stocks, Forex and Gold 