The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is on a backfoot this morning but there are a group of stocks that are faring worse than the broader market.
The top 200 benchmark fell 0.4% on weak offshore leads with the All Ordinaries (Index:^AORD) (ASX:XAO) index backing away from yesterday's record close by a similar amount.
But shares in three large cap shares have fallen even harder after leading brokers downgraded their recommendation on the stocks.
Negative prognosis
The Sonic Healthcare Limited (ASX: SHL) share price is one example. Shares in the medical diagnostics services group tumbled 3.7% to $27.10 at the time of writing after Credit Suisse cut its rating to "underperform" on the back of the latest Medicare data.
The data was weak across the board with year-to-date diagnostic imaging volume growth of 2.2% compared with the five-year average of 4.5%.
"On the back of the weaker-than-expected industry data, we decrease our estimates by ~1%," said the broker who lower its price target to $24.20 from $24.70 per share.
"With the stock trading at 22.4x 12-month forward consensus EPS (a 5-year P/E high), we see little support for the current valuation."
Expensive insurance
Meanwhile, the Insurance Australia Group Ltd (ASX: IAG) lost 1% to $8.63 as it copped a downgrade to "neutral" from "overweight" by JP Morgan as the broker sees risks to its profit results due on August 8.
"IAG's share price has appreciated materially and is now trading at a significant premium to peers on an absolute PE [price-earnings] or PE relative to market basis," said JP Morgan which has a $8.20 per share price target.
"As such, there is likely to be a strong expectation in the market about the need to hit margin guidance in FY19 (16 – 18%) and to show improvement on margins into FY20."
There are some questions about the insurers ability to do that given falling interest rates, weakness in its commercial business and a moderation in the outlook for its New Zealand operations.
At the pointy end of the iron ore market
The Fortescue Metals Group Limited (ASX: FMG) share price isn't bouncing with its larger peers. The FMG share price tumbled another 1.5% to $8.12 when the BHP Group Ltd (ASX: BHP) share price and Rio Tinto Limited (ASX: RIO) share price have inched up 0.3% and 0.8%, respectively.
All three stocks took a heavy beating yesterday on worries about iron ore prices. But Fortescue has a additional headwind after Credit Suisse downgraded the stock.
"We somewhat begrudgingly downgrade our FMG rating to Neutral (from Outperform) and move our TP [target price] to A$8/share (from A$8.20/share), driven by our house view that iron ore prices will peak this quarter," said the broker.
"The call is on the commodity over the company, the latter of which we find difficult to fault."
Regardless, I think Fortescue will suffer more than BHP and Rio Tinto in a falling iron ore price environment, and locking in some profit isn't such a bad idea.
