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3 Shares Analysts Hate: J Sainsbury plc, RSA Insurance Group plc And ASOS plc

Right now, J Sainsbury (LSE: SBRY), RSA Insurance (LSE: RSA) and ASOS (LSE: ASC) aren’t winning friends among City analysts.

ASOS

Online fashion phenomenon ASOS was for many years the darling of City professionals and private investors alike. The shares reached a record high of 7,050p in February this year, putting the company on an eye-watering P/E of 141.

One analyst had previously broken rank with the ASOS admirers. Morgan Stanley didn’t suggest that the emperor was wearing no clothes, but simply that the clothes were not quite so rich and bejewelled as the crowd was proclaiming. On the basis of the sky-high valuation, Morgan Stanley said: “We are reluctant to downgrade ASOS but see no credible alternative”.

ASOS has issued three profit warnings this year, and at a current share price of 2,661p the P/E has come down to (a still-heady) 60. While ASOS retains plenty of supporters, an unprecedented five analysts now rate the stock a ‘sell’. Oriel Securities reckons “the valuation still does not discount any bad news and management has work to do to rebuild its reputation”.

RSA Insurance

Admiral, the owner of the car insurance brand of the same name, and RSA Insurance, whose brands include MORE TH>N, have been out of favour with the City for some time. Third-quarter updates from the pair last week did little to change opinion. In fact, analysts at Canaccord Genuity joined the ‘sell’ camp on RSA Insurance, which trades on a forecast P/E of 15 at a share price of 446p.

RSA is in the midst of a restructuring under former Royal Bank of Scotland turnaround boss Stephen Hester. Moving from ‘hold’ to ‘sell’, Canaccord said RSA’s Q3 statement “highlighted the myriad headwinds the company faces as it restructures in difficult markets”. Even Deutsche Bank, which retained its ‘hold’ recommendation, sounded decidedly concerned: “Weaker than expected top line growth negates the impact of planned cost savings and puts further upwards pressure on the expense ratio near-term”.

Sainsbury’s

Morrisons has long been the City’s top ‘sell’ pick in the troubled supermarket sector, with Tesco not far behind. Both companies have recently released results, and there has been some thawing of the icy sentiment. In the case of Tesco, the number of analysts rating the company a ‘sell’ has halved from six months ago.

In contrast, Sainsbury’s, which is due to release interim results on Wednesday, has seen a deterioration in City sentiment. Six months ago, more analysts were still rating the company a ‘buy’ than a ‘sell’. However, this has since reversed, led by a downgrade from one of Sainsbury’s house brokers, following the appointment of Dave Lewis as Tesco’s new chief executive in July.

The City experts anticipate Lewis will embark on a serious price war, hurting Sainsbury’s, whose lower operating margin gives it less room for manoeuvre. House broker Morgan Stanley suggested “Sainsbury’s control over its destiny has weakened”. Deutsche Bank and Barclays are among analysts now expecting a cut to the dividend, which currently yields a trailing 6.6% at a share price of 262p.

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G A Chester has no position in any shares mentioned. The Motley Fool UK owns shares of ASOS and Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.