Dorfman Finds Stocks Loved By Analysts Hard To Recommend (VNP.TO, RGA, FSYS, CMS)

According to John Dorfman, the possibility of analyst predictions turning wrong is quite high. Most of the stocks that have been favorites of all the Wall Street analysts have either remained flat or fallen sharply over the year. He cites the example of Accenture (NYSE: ACN), which had plunged 33% in 2002, when all sixteen analysts had urged investors to buy the stock.

Dorfman said that CMS Energy (NYSE: CMS), which is currently the favorite of all analysts, is trading at 13 times its earnings and is fairly priced. The dividend yield is 3.2%, which is very low for a utility stock.

The other stocks that are favorites of analysts this year are:
Saint-Laurent, Canada-based 5N Plus Inc (Toronto: VNP.TO), which is favored by a dozen analysts, sells extremely pure metals and alloys to the electronics industry. VNP.TO earned 21% return on stockholders’ equity in FY09 and its stock was being traded for 14 times earnings. Although Dorfman likes 5N, he is baffled by the enthusiasm of the analysts, who themselves are predicting a decline of 22% in FY10 earnings.

Reinsurance Group of America Inc (NYSE: RGA) is rated “buy” by ten brokerage houses. Although the stock appears cheap at nine times earnings, RGA’s profitability was low in 2008 and return on equity only 6%.

Fuel Systems Solutions Inc (NASDAQ: FSYS) is rated “buy” by ten analysts. FSYS’ shares have been volatile and have moved up from $10 in 2002 to around $50. Although the stock might prove to have durable growth, it seems highly expensive trading at 27 times earnings.