This week just brought more uncertainty with late-week selling pressure due to the Federal Reserve not having confidence to raise interest rates above zero. That being said, the markets still have largely stabilized after the panic from August, and investors have resumed their hunt for value and opportunity in the market.
24/7 Wall St. reviews dozens of analyst research reports each morning to find new trading and investing ideas for its readers. Some of these analyst calls are on stocks to buy, and some of these are in the low-priced stocks of $10.00 and under.
Investors need to understand that stocks under $10 or with a small-cap share price generally tend to have more risk than most Dow or S&P 500 stocks. Traditional “Buy” and equivalent ratings come with 8% to 15% implied upside, but in small-cap and low-priced stocks that can be far more. In some cases, the implied upside can be 25%, 35% and even over 50% to 100%.
Along with more potential rewards, there is also an automatic implied higher risk profile. Another issue to consider is that analysts sometimes live under the same assumptions as traditional investors, and they often have no more insight about a company and the developments around its peers than savvy institutional investors. And sometimes analysts are just wrong in their assumptions, or they can even have a conflict of interest due to client interests or due to investment banking relationships.
These are the nine analyst calls from this past week in stocks under $10.00 with high upside projections.
Alcoa Inc. (NYSE: AA) barely skated under the $10.00 mark, closing at $9.97 on Friday. A midweek call from Morgan Stanley reiterated an Overweight rating and a $14.00 price target. The driving force was positive views on its risk-reward profile. More specifically, recent moves by the company, its underappreciated downstream portfolio, an enhanced auto-frame move, growing aerospace revenues, a move away from being price-dependent and other factors were cited for the call. Alcoa has a $7.97 to $17.75 trading range in the past 52-weeks and a consensus price target of $13.33.
Earthlink Holdings Corp. (NASDAQ: ELNK) was started as Outperform at Northland Securities on Tuesday. The price target was set at $10.00, versus a prior closing price of $8.77. Due to the market sell-off, EarthLink shares closed at $8.08 on Friday. Its 2% dividend yield leaves close to 25% total return upside. EarthLink has a consensus price target of $9.20 and a 52-week range of $2.95 to $9.38. Here is some history and trivia for you: When was the last time EarthLink had a nominal share price of $10.00? It was only in one month of 2008 — June of 2008 to be exact — and you have to go back to 2006 before that.
Nokia Corp. (NYSE: NOK) was given a special thumbs-up rating this past Monday. Goldman Sachs already had a Buy rating, but the firm added Nokia to its prized Conviction Buy List. Nokia closed at $6.51 ahead of the call, but despite a sell-off it closed out the week at $6.60. The Finnish tech giant has a 52-week range of $5.71 to $8.73 and a consensus analyst price target of $8.94. The driving force here is the combined Alcatel-Lucent merger benefits.
ALSO READ: 6 Stocks to Buy When Interest Rates Finally Rise
Pan American Silver Corp. (NASDAQ: PAAS) was started as Outperform at FBR Capital Markets on Friday. What stands out here in a larger more cautious gold and silver call was that the firm’s $8.00 price target does not seem that massive compared to a prior $6.93 close, and versus Friday’s $7.10 closing price. The firm believes that its stock slide is unjustified, with positive comments on silver, its own execution strengths and coming opportunities via it making potential acquisitions. Pan American Silver has a consensus analyst price of $8.63 and a 52-week range of $5.85 to $12.22.
PMC-Sierra Inc. (NASDAQ: PMCS) was started as Outperform at Wedbush Securities on Friday. The firm assigned a $9.00 price target, versus a $6.30 prior close. PMC-Sierra has a $9.75 consensus price target and a 52-week range of $5.65 to $9.86. This semiconductor solutions for communications network infrastructure markets has been under $10.00 for all but one month of October 2009 — and back to 2006 before then. While it trades at 13 times expected 2015 earnings, it is valued at just under 10 times normal operating earnings expectations for 2016.
Rite Aid Corp. (NYSE: RAD) tanked after earnings this past week, and most of the selling was untied to the disappointment in interest rates from the Federal Reserve. Merrill Lynch came out with a research report showing that enough is enough, reiterating its Buy rating and $11.00 price target. Rite Aid shares closed at $7.51 on Friday, after having been at $8.59 on Wednesday ahead of earnings. This leaves roughly 33% implied upside. The firm’s call signaled above-plan EBITDA, balance sheet clarity, above-plan pharmacy benefit manager contributions and several other issues.
Sirius XM Holdings Inc. (NASDAQ: SIRI) was started as Buy at Gabelli on Friday, with an upside price target of $4.75. Sirius XM had previously closed at $3.86, has a consensus analyst price target of $4.60 and has a 52-week range of $3.14 to $4.04. Its price target had been raised by Barclays to $4.60 from $4.00 just days before the Gabelli call. Much of the strength case was tied to new car sales, an existing effort in used cars, high customer retention and of course that elusive private market value potential. The most bullish analyst target from Wall Street on Sirius XM is up at $5.25.
Additional analyst calls in stocks under $10.00 were seen as follows:
Hallador Energy Co. (NASDAQ: HNRG) was started as Outperform at FBR Capital Markets on Friday, in what could be an unpopular call, with a $9.00 price target. It closed at $7.12 on Friday and has a 52-week range of $6.00 to $13.04. Interestingly enough, Hallador mines, produces and sells steam coal for electric utilities.
J.C. Penney Co. Inc. (NYSE: JCP) was far from an upgrade, being reiterated as Underperform with a $7.00 price target at Credit Suisse on Friday. That was versus a $9.78 closing price. Credit Suisse’s note seemed to have more positives in it than negatives, but its main issue remains driving significant top-line growth.
Spirit Realty Capital Inc. (NYSE: SRC) was downgraded to Neutral from Buy with an $11.00 price target (versus a $9.27 close) at Bank of America Merrill Lynch.
Again, small-cap and low-priced stocks generally come with much higher implied upside than most Dow and S&P 500 stocks. Only six members of the entire S&P 500 Index have a share price under $10.00.
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