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3 popular large caps just got hit with “sell” ratings by top brokers

Brendon Lau
shares to sell

The market is likely to end the week on a high note with the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index rallying strongly ahead of the weekend.

All sectors are in positive territory during lunch time trade with some of the biggest gains coming from the mining sector on hopes that a US-China trade deal will lift demand for iron ore.

This could be a good time to be getting rid of stocks that have overshot their fundamentals and there are three that have become the latest victims to broker “sell” recommendations.

Heading for the sickbed

One that investors should be dumping is the Ramsay Health Care Limited Fully Paid Ord. Shrs (ASX: RHC) share price. The stock is 0.9% to $73.03 at the time of writing and Morgan Stanley reiterated its “underweight” rating on the stock following the hospital operators annual general meeting.

It’s private health insurer Medibank Private Ltd’s (ASX: MPL) dismal trading update that is driving concern about the outlook for Ramsay.

“Outcomes of contract negotiations between RHC & MPL & BUPA, as well as future Government approved rates remain key for the long-term outlook,” said the broker.

“We still await any meaningful regulatory changes or disruptive evolution toward alternate care models as the days of ‘make the patient pay more’ appear over.”

The stock is at risk of falling around 16% to the broker’s price target of $61 a share.

No bargain buy

Don’t add the Wesfarmers Ltd (ASX: WES) share price to your shopping cart, warns Citigroup. The broker kept its “sell” recommendation on the retail conglomerate despite management giving encouraging commentary about consumer spending recovery during its AGM.

This is because any sales increase is likely to be offset by rising cost pressures from the implementation of Enterprise Bargaining Agreements (EBAs), investments in its online sales capabilities and the falling Australian dollar.

“Wesfarmers appears to be looking through the cost pressures, by continuing to invest, at the expense of near-term margins,” said Citi.

“This longer term view is likely to lead to near term earnings volatility even if it maximizes long term shareholder value.”

After the stock’s close to 30% rally over the past 12-months, the stock is no bargain buy. Citi’s price target on Wesfarmers is $34.50 a share.

Poor prognosis

Improving industry conditions for Australian pathology and imaging is giving the Sonic Healthcare Limited (ASX: SHL) share price a big boost. The stock gained around 36% over the past year and UBS thinks this is the time to be locking in profits.

“We note the Federal Budget for the past few years has factored in growth in diagnostics services of ~4%,” said UBS.

“However, it is not clear what the Government’s intention is should growth come in ahead of this rate for a sustained period of time.

Ultimately, service providers remain price takers and in our view this should be reflected in company valuations.”

UBS rates Sonic a “sell” with a price target of $26.50 a share.

The post 3 popular large caps just got hit with “sell” ratings by top brokers appeared first on Motley Fool Australia.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. Connect with him on Twitter @brenlau.

The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool Australia has recommended Ramsay Health Care Limited and Sonic Healthcare Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019