If you just looked at a 369-point gain on the Dow on Friday, you might think it was a great week. That gain merely wiped out two days of big losses and the Dow closed up about 0.2% on the week. The S&P 500 was up less than 0.1%.
What you are seeing is a continued and persistent willingness for four years now of the investing public to buy stocks on weakness. 24/7 Wall St. reviews dozens of analyst upgrades and downgrades each day of the week, and that ends up being hundreds of research reports each week. This past week had many new aggressive Buy and Outperform ratings on stocks upgraded, initiated or reiterated.
Most analysts’ Buy ratings in Dow and S&P 500 stocks come with upside of 8% to 15%, and some may even call for 25% upside, but some analyst calls become much more aggressive. Some calls project upside of nearly 50% — and then some are looking for a stock to rise as much as 100%.
It is this group of analyst calls with massive upside, close to 50% or even 100%, where investors are often given an expanded review. After all, this is way out of line for traditional research calls. In almost every instance, the massive upside potential is because a company is much more risky than most Dow or S&P 500 stocks.
Investors have to be extremely careful here. Super-high potential rewards come with much higher risks. Conservative investors should avoid these calls, almost with no exceptions. It is even possible that some of these companies may not survive the tests of time. The “widows and orphans” investors better stay clear.
Another thing to consider here is that Wall Street analysts often have no more information or insight than institutional or sophisticated investors. Many analysts also make calls that often never see the bullish case unfold, and in many cases their assumptions are flawed. So, with all caveats and warnings noted, here are some of this past week’s analyst calls with massive upside.
American Eagle Outfitters Inc. (NYSE: AEO) was reiterated as Buy with a $24 price target at Jefferies on Thursday after it beat earnings. This is versus a $15.80 closing price on Friday, representing a whopping 51% upside. Jefferies said that American Eagle remains poised to gain share in the teen space as sales momentum continued into the fourth quarter with a solid Thanksgiving weekend.
CF Industries Holdings Inc. (NYSE: CF) was already a Buy rating at Bank of America Merrill Lynch, but the stock was added to the prized US 1 List. It was also given a $65.00 price objective, versus a $45.00 prior close, and its consensus price target was $57.16 at that time. The fertilizer stock has a 52-week trading range of $43.57 to $70.32, so Merrill Lynch was making the call close to its recent lows and the stock has traded there before. CF is also valued at only about 10 times earnings.
Fitbit Inc. (NYSE: FIT) was raised to Overweight from Equal Weight with a $49.00 price target at Barclays this past week, and its stock rose 10% on Friday to close out at $33.37 on strong volume. Fitbit still has a consensus price target close to $50, and it has a post-IPO range of $26.46 to $51.90. This call represents 47% upside if accurate, but are we supposed to believe that the Barclay’s target being $1.50 under the consensus target means that it is conservative?
Mobileye N.V. (NYSE: MBLY) was started with a Buy rating at Evercore ISI on Wednesday. The stock was assigned a $68 price target, versus a prior $43.46 closing price. Mobileye had a consensus analyst price target of close to $72.50 at the time ($72.10 by Friday) and has a 52-week trading range of $32.41 to $64.48. If Evercore’s call is right, this leaves an implied upside of 58% or so.
SLM Corp. (NASDAQ: SLM) was started as Overweight with a $10.00 price target at JPMorgan this week. The stock closed at $6.71 before the call and closed the week out at $6.75. SLM has a consensus price target of $10.72 and a 52-week range of $6.33 to $10.76. Maybe there is still money in student loans after all, and trading at barely 10 times earnings is not exactly expensive. Of course this one comes with a past, and there is always headline risk in an election year.
Additional analyst calls with massive upside from last week are below.
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