Stocks ended the week on a very strong note, after payrolls gave Fed-fearing investors a breather. While the market is again close to all-time highs, investors keep buying pullbacks and they keep looking for value and undiscovered or overlooked stories. 24/7 Wall St. reviews dozens of analyst reports each morning of the week to find new trading and investing ideas for readers. While some analyst calls cover stocks to buy and some cover stocks to sell, the weekend reviews of these show that many small-cap and stocks under $10 have massive upside calls in these analyst reports.
Along with that massive upside potential, investors must keep in mind that low-priced or small-cap stocks almost always come with more risk than Dow Jones Industrial Average or S&P 500 stocks. Analyst calls in Dow or S&P 500 stocks generally come with upside projections of 10% to 20%. In the low-priced and small-cap universe, the analysts often have upside targets of 30%, 50% or even 100% and above. Those huge target prices should also confirm that the stocks are much riskier by nature.
24/7 Wall St. would, on top of stating higher risk parameters here, remind readers that many analyst calls just do not live up to expectations. Some of the reports are also all-or-none calls. To prove the point: some stocks with small market caps and low share prices languish for a decade, some get delisted and some even implode. Many risk-taking investors fall into a trap of believing that small-cap and low-priced stocks eventually grow into huge companies. Unfortunately, that just is not the case.
These are the 11 analyst stock picks under $10 from this past week. They have been broken up into two groups, one with more detail and the second group is generally made up of the lesser-known names or where less information was available.
Advanced Micro Devices Inc. (NASDAQ: AMD) has been featured in the analyst calls to buy because Wells Fargo maintained its Outperform rating and $3.00 to $3.50 price valuation range after AMD’s analyst day this past week. The big caveat here is that most analysts were not positive, and some were very negative. Still, this was covered in detail to see if there is upside remaining for the bulls. Wells Fargo called its analyst day takeaway a clear and decisive strategy, and the firm thinks it is cheap at 0.5 to 0.6 times expected revenues, despite some serious risks that it admitted to. The firm also talked about the potentiality of $0.50 in earnings per share.
Alcatel-Lucent S.A. (NYSE: ALU) had earnings this week and shares rose from under $3.50 before earnings to $3.80 at the close of Friday. We saw more than one upgrade this week: to Buy from Neutral at Citigroup, to Buy from Neutral at UBS and to Buy from Hold at Soc-Gen. Many things feel hard to get excited about here, but the Nokia merger is not being panned as much as it was earlier.
Genworth Financial Inc. (NYSE: GNW) remains a controversial stock due its more recent issues with long-term care insurance. The stock also fell this week to $8.28 from above $9.00 earlier in the week. The big call here was that Jefferies maintained its Buy rating and the firm raised its price target to $12 from $10, implying close to 50% upside if it is right. While the consensus price target is $10.50, there were multiple downgrades and cautious analyst calls here as well: UBS has downgraded it to Neutral from Buy, Morgan Stanley downgraded it to Underweight, and Macquarie cut it to Underperform.
Groupon Inc. (NASDAQ: GRPN) is always a stock full of controversy, and this call is somewhat puzzling with the upside versus the official rating. Groupon was maintained as Neutral at Janney Capital Markets after earnings, but the firm also maintained its $9 fair value target, compared to a prior $6.84 close and a $6.63 close on Friday. That represents roughly 35% upside. And for the big call, Sterne Agee CRT maintained its Buy rating and $12 price target. The firm felt the quarter was good and that guidance was solid, after the noise is removed.
Rocket Fuel Inc. (NASDAQ: FUEL) had two bits of news this week. It had better earnings and received a fairly odd at-the-money $350 million buyout offer from a firm called Gravity4. Prior to that second bit of news, Janney Capital Markets maintained its Buy rating, but the fair value target was lowered to $15.00 from $17.50. This was versus a $7.63 close and is against Friday’s closing price of $8.32. What investors need to know here is that Rocket Fuel shares have been battered, with a 52-week range of $7.53 to $31.84. Janney feels it very cheap against revenue and growth, and they feel it can achieve revenue and profitability goals. Rocket Fuel’s consensus price target is closer to $11, and note that $15 is now the highest target on Wall Street.
Additional analyst calls in stocks under $10 were in Boulder Brands, Gaiam, Nokia, Quantum Corp., Scorpio Bulkers, and Standard Pacific.