UBS: These Are Our 10 Least favourite Stocks

Don Draper disgusted face

Photo: AMC

UBS is out with a note detailing what it calls its “least preferred stocks” for 2Q earnings season. The bank expects earnings to slightly surpass lowered consensus expectations, despite weak growth and a negative impact from global exposure.

UBS expects these 10 stocks to surprise on the downside of already poor expectations. Now might be a good time to jump ship. 

Bank of America (BAC)

Sector: Financial

UBS Q2 EPS estimate: $0.13

Percentage below consensus: 5.3 per cent

UBS analysis: BofA will have a hard time generating consistent earnings for some time to come. In the short run, they will be hurt by weak capital markets, interest margins, and higher costs in its mortgage operation.

Consolidated Edison (ED)

Sector: Utilities

UBS EPS estimate: $0.54

Percentage below consensus: 5.3 per cent

UBS analysis: Con Ed faces a range of headwinds, including higher taxes, lower non regulated contributions, and a possible lower allowed return on equity from 2013.

Progressive Corporation (PGR)

Sector: Financials

UBS EPS estimate: $0.26

Percentage below consensus: 3.6 per cent

UBS analysis: Analyst Brian Meredith sees downside for the stock from loss trends overwhelming price increases' impact on results. Raising prices may lower top line growth as well.

Parker Hannifin Corp. (PH)

Sector: Industrials

UBS EPS estimate: $1.90

Percentage below consensus: 2.1 per cent

UBS analysis: Global industrial component demand looks to be slowing. The company's competitors have lowered revenue guidance, which makes UBS cautious about PH.

Moody's Corp. (MCO)

Sector: Financials

UBS EPS estimate: $0.64

Percentage below consensus: 9.9 per cent

UBS analysis: Moody's will face pressure due to lower global debt issuance in the second quarter (which may continue through the year) and increased compliance cost due to European regulation.

MGM Resorts International (MGM)

Sector: Consumer discretionary

UBS EPS estimate: -$0.19

Percentage below consensus: 35.7 per cent

UBS analysis: MGM's 13 per cent revenue per available room in Las Vegas last year was inflated due to the number of rooms out of service and the reclassification of resort fees. They expect RevPAR growth to slow to single digits

Safeway, Inc. (SWY)

Sector: Consumer staples

UBS EPS estimate: $0.41

Percentage below consensus: 4.1 per cent

UBS analysis: Safeway is currently in what UBS describes as 'a transition period'. They expect EBIT margins to fall 30 basis points to 2.4 per cent as Safeway increases ad spend for its new digital pricing platform. The platform may not be able to turn around the companies underperformance relative to competitors.

MetroPCS Communications, Inc. (PCS)

Sector: Telecom Svcs

UBS EPS estimate: $0.17

Percentage below consensus: 19 per cent

UBS analysis: MetroPCS will continue to leak customers as it has no plans to carry the iPhone. Those seeking it have available alternatives in Cricket and Virgin Mobile.

Aeropostale, Inc. (ARO)

Sector: Consumer discretionary

UBS EPS estimate: $0.05

Percentage below consensus: 16.7 per cent

UBS analysis: Earnings could disappoint because women's clothing lost share in Q1, which may continue, significant competition in performance and promotion from rivals, expected muted margin performance, and exposure to basics.

New York Times Co. (NYT)

Sector: Consumer discretionary

UBS EPS estimate: $0.11

Percentage below consensus: 15.4 per cent

UBS analysis: The pull back in advertising will be felt mostly in print, and it will suffer from the continued shift to online media. The New York Times is particularly exposed to a slowdown in national advertising, which UBS expects to slow.

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