Stocks seem to be migrating from a tired bull market phase into a phase of volatility. It is also a phase where broad-based upside might not be an automatic assumption going forward. Many companies have seen shares rise or fall handily around earnings and other key events of late. This brings up a climate where many investors are looking for new stock ideas, and the stocks that trade under $10 often have some incredible calls for upside when analysts get behind them.
24/7 Wall St. reviews literally hundreds of Wall Street research reports each week. We see endless calls on stocks to buy and stocks to sell, but it is in the small cap stocks and lower priced stocks where the analysts are often the most aggressive — sometimes with calls for shares to rise 50%, 100% or even exponentially.
Some caveats and common sense reminders absolutely have to be considered by investors here. These caveats and risks are far higher than in large cap stocks and S&P 500 or DJIA stocks. You almost never hear of an analyst report calling for Dow or S&P 500 stocks to rise 50% or 100%, yet you frequently do in the very speculative sector. Another consideration with small-cap stocks or those under $10 is that they would almost never pass a “widows and orphans” suitability test for investors.
These are this past week’s analyst stock picks trading under $10 with massive upside potential.
Advanced Micro Devices Inc. (NYSE: AMD) ran into trouble after earnings with a major change in sentiment, and most of what we saw in the last couple of weeks was analyst downgrades of a sort. Not Canaccord Genuity - with a Thursday note maintaining its Buy rating and its $4.50 price target. The firm had investor relations meetings and discussed near-term challenges and long-term opportunities, and they feel that the diversification strategy continues to progress.
Alcatel-Lucent SA (NYSE: ALU) was raised to Overweight from Equal Weight at Morgan Stanley back on Monday. What was interesting here about this upgrade is that it was in the week after earnings knocked the ADSs down to under $3.40 from above $3.80. These ADSs were trading at $3.31 late on Friday.
Alpha Natural Resources, Inc. (NYSE: ANR) had earnings that were far less bad than expected, and the coal stock was raised to Neutral from Sell at UBS on Thursday. While a Neutral rating is far from a Buy rating, this was a $3.37 stock a week ago and the stock was up at $3.71 on late Friday after seeing much stronger share volume this last week. The coal sector has been in the cat box for so long that any upgrade of any sort can feel like a subliminal ‘strong buy’ rating.
Groupon Inc. (NASDAQ: GRPN) had a dismal earnings report, and we did see many analysts lower their ratings or price targets. What was interesting was that Sterne Agee maintained its Buy rating, and its $12 price target after the report. With Groupon shares down under $6, this implies that Sterne Agee still somehow thinks Groupon can double. Sterne Agee said, “While the optics of near-term results may seem mediocre to slightly disappointing, we think the progress we were hoping for in the second quarter was mostly there.”