The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is flip-flopping between gains and losses today with investors on tenterhooks over the US and China trade conflict.
But there are three stocks that could be facing more pressure than most as leading brokers have moved to downgrade their recommendations on these large cap stocks.
It probably explains why these stocks are underperforming the broader market in after lunch trade even as the ASX 200 managed to claw back from the red to trade at breakeven.
No insurance from a downgrade
One of the three is the QBE Insurance Group Ltd (ASX: QBE) share price. Shares in the insurance group fell 2.6% to $12.31 after Credit Suisse cut its recommendation on the stock to "neutral" from "outperform" with a price target of $13 per share.
"QBE's share price has outperformed the market by 7% over the past three months (~20% over 12 months) and has approached our target price. We sit ~10% below consensus forecasts in FY19 and outer years," said the broker.
"The difference between the top and bottom of QBE's insurance profit guidance is almost 30%…[and] Consensus has again gone to the top of the QBE guidance range and hence the current share price suggests a P/E discount of ~22% if QBE hits consensus forecasts and achieves the top of its guidance range.
"However, if QBE were to deliver at the bottom of its guidance range in FY19, it is currently trading on a ~15% P/E premium to the market and at one of the most expensive multiples it has historically traded at."
The stock had rallied due to a number of tailwinds but headwinds are starting to develop and that poses an earnings risk to QBE.
These headwinds include a slowdown in its lenders mortgage insurance business, increasingly volatile weather that can impact on claims and the recent drop in bond yields that can drag on the group's investment income.
Risk of missing expectations
Steel maker BlueScope Steel Limited (ASX: BSL) is another under pressure today. The BSL share price tumbled 3% to $11.38 after UBS cut its rating on the stock to "neutral" from "buy" and lowered its price target to $13 from $16 per share.
The broker believes the stock is at risk of missing consensus forecasts due to the removal of US steel tariffs on Canadian and Mexican steel producers, the high iron ore price and weakening demand for detached houses in Australia.
"We cut our FY20 & FY21 earnings by ~36% and we are now 35% below consensus," said UBS.
Foundations too weak to support valuation
Another housing construction exposed stock that copped a downgrade is CSR Limited (ASX: CSR). Citigroup changed its recommendation on the stock to "sell" from "neutral" and the CSR share price dropped 1% to $4.10.
There's more room for CSR to fall too if Citi's $3.50 target price is anything to go by.
"CSR shares have strongly outperformed this year (+47% YTD versus ASX 200 +14%), driven by easing alumina cost concerns and more recently from a sharp boost in housing market sentiment," said the broker.
"While we expect a bottoming in the domestic housing downturn to soon emerge, we believe CSR's recent rally has now more than priced this in."
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