"Sell" ratings are so rare on Wall Street that when an analyst recommends bailing out of a stock, investors take notice. Just ask Prudential Securities Inc.'s Mohammed Ali.
Ali's boss, Nicholas Heymann, reduced his investment rating on Whirlpool Corp. (ticker symbol: WHR) to "sell" Monday from "hold," sending shares of the No. 1 U.S. appliance maker tumbling 11%.
Whirlpool now is one of only 34 companies in the Standard & Poor's 500 index with a "sell" rating from a brokerage analyst, according to First Call/Thomson Financial.
Of the almost 900,000 ratings tracked in 2000 by Bloomberg, only 1.7% are "sell."
The downgrade prompted a "remarkably high" number of calls to Prudential's New York office from institutional investors and the press, Ali said. Because Heymann was in Europe on business, the 27-year-old associate fielded most of them.
In a five-page report, Heymann said Whirlpool's market share will fall as some retailers, such as Circuit City Group (CC), stop carrying appliances. Also, Whirlpool faces increasing competition for retail floor space from appliance manufacturers General Electric Co. (GE) and Maytag Corp. (MYG), he said.
On the New York Stock Exchange, Whirlpool shares sank $4.69 to close at $38.13, their lowest level in almost eight years. Shares of the Benton Harbor, Mich., maker of refrigerators and dishwashers have sunk 48% in the last 12 months.
The stock could continue falling, Heymann said.
With Heymann's downgrade, Whirlpool is one of only two stocks that Prudential rates "sell." The other is Lason Inc. (LSON), which is followed by Kevin Dyches.
That's about one "sell" for every 300 companies followed for Prudential. Merrill Lynch & Co., the No. 1 brokerage by capital, has three "sell" ratings on 1,351 companies, or one in every 450, according to First Call.
First Call, which tracks analyst recommendations and earnings estimates, said 28,000 analyst reports have yielded 37 "sell" ratings on 34 different S&P 500 stocks. Winn-Dixie Stores Inc. (WIN), Kmart Corp. (KM) and Homestake Mining Co. (HM) have two "sell" ratings each.
"Sell" ratings may become more common as the U.S. economy slows and returns drop in the stock market, said Edgar Peters, chief investment officer at Panagora Asset Management.
"It used to be considered risky to have a 'sell,' but we may be getting to a point where it's not so risky," Peters said.
The Federal Reserve has raised short-term interest rates 1.75 percentage points in the last year to slow the U.S. economy and keep inflation in check.
The Dow Jones industrial average is down 2.1% for the year, while the Nasdaq composite is virtually unchanged in 2000. The S&P 500 has risen 3.1% this year, compared with a gain of at least 20% every year for the last half-decade.