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Top brokers name 3 ASX shares to sell today

On Wednesday I picked out three shares that have been given buy ratings by top brokers this week.

Today I thought I would look at the shares that have fallen out of favour and been given sell ratings.

Three that caught my eye are summarised below:

AGL Energy Limited (ASX: AGL)

According to a note out of Morgans, it has downgraded this energy company’s shares to a reduce rating and cut the price target on them to $16.89. The broker has made the move on the back of news that the Federal Government has requested the Australian Energy Regulator to implement a default pricing policy to replace standing offers. The broker estimates that a 10% reduction in retail energy prices would reduce FY 2020 profits by over $100 million. I agree with this view. I’ve been recommending AGL Energy as a sell for some time and even though its shares have pulled back considerably, I expect they could still drift a lot lower in the run up to the next election.

Harvey Norman Holdings Limited (ASX: HVN)

A note out of Goldman Sachs reveals that its analysts have initiated coverage on Harvey Norman’s shares with a sell rating and $2.70 price target. According to the note, the broker is bearish on the retailer due to deteriorating housing trends and the historical relationship between these trends and its sales and EBIT margins. It expects net profit after tax to sink 13% this year to $326 million, before declining a further 5% in FY 2020. Things are even worse on an earnings per share basis due to its recent capital raising. Goldman expects earnings per share to decline 18% this year. I agree with Goldman Sachs and think investors would be wise to avoid Harvey Norman’s shares right now.

Reject Shop Ltd (ASX: TRS)

Analysts at Morgan Stanley have downgraded this discount retailer’s shares to an underweight rating and slashed their price target from $6.10 down to $2.10. According to the note, the broker doesn’t expect trading conditions to improve for Reject Shop during the all-important December quarter, which it suspects could lead to yet another profit downgrade in January. While its shares do look cheap now, I think it would be best to follow Morgan Stanley’s lead by avoiding the struggling retailer.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended The Reject Shop 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.