Investing

3 Huge Contrarian Stocks to Buy With Big Upside Potential

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One of the major complaints often registered by investors is the wishy-washy approach many Wall Street analysts take when a headline or operational setback hits a company, or a downturn in a sector pulls a stock down with it. So many times after one bad earnings report, a clinical setback or a negative headline hits, they throw in the towel, lower the price target and rating and move on.

In a refreshing change, the analysts at SunTrust Robinson Humphrey stay positive and offer investors some insight and guidance on three companies that have been absolutely hammered recently. While these are much more suited for aggressive growth accounts, they could all offer some massive upside to patient investors.

Chipotle Mexican Grill

This company had continued to astound shareholders and short sellers alike, until some recent headline issues. Chipotle Mexican Grill Inc. (NYSE: CMG) has more than 1,500 restaurants worldwide and is planning on opening up to 195 new restaurants this year.

By now most investors are familiar with the E. coli outbreak that has severely affected Chipotle. SunTrust acknowledges that the outbreak has affected sales more than expected, and the stock plunged when the company rescinded its 2016 forecast and projecting its first quarterly same-store sales decline as a public company. SunTrust also notes that while the outbreak has expanded to several new states, no new infections have occurred since early November.

Last week Chipotle announced plans for a $300 million stock buyback and unveiled revamped food-safety procedures, which include improving its supply chain and conducting DNA testing of produce. The SunTrust analyst feels that, with the outbreak contained, an improvement to the food safety and a strong brand with consumers, traffic should turn positive in the third quarter of 2016. Investors should remember Wall Street as a whole remains very negative and any future outbreaks could be very bad for the company.

SunTrust lowered its price target to $714. The Thomson/First Call consensus price target is $687.58. Chipotle shares closed Monday at $551.75.


Bluebird Bio

This stock was crushed Monday and is down a stunning 73% since late May. Bluebird Bio Inc. (NASDAQ: BLUE) develops and commercializes innovative biopharmaceuticals for serious diseases and medical conditions. Its product portfolio includes five approved products and multiple clinical and preclinical product candidates.

The company presented disappointing gene therapy data over the weekend at the American Society of Hematology conference, and the stock was absolutely mauled Monday, down a stunning 35%. SunTrust stands its ground and thinks the data presented is actually promising and cites the reduction in transfusions required, which suggests solid clinical relevance. The firm also thinks Bluebird Bio may have demonstrated success and that beta-thal remains on track, and it suggests buying this current extreme weakness.

Needless to say, the company will have to produce additional positive data to alleviate investor concerns. However, other Wall Street analysts pointed to the fact that the issues are solvable and that the company has significant resources to do so. Caution is advised, as any failure to produce solid clinical data could be very damaging to the company and the stock.

The SunTrust price target is a massive $154, but the consensus target is $156.82. The shares closed Monday at $52.25, down almost 40%.

Kinder Morgan

This is one of the most recommended companies in the MLP sector on Wall Street though it has been mauled this year. Kinder Morgan Inc. (NYSE: KMI) has completed the acquisition of Kinder Morgan Energy Partners, Kinder Morgan Management and El Paso Pipeline Partners. The merger plan was comprised of $40 billion in parent-company equity, $4 billion in cash and $27 billion in assumed debt. It was a move some shareholders were opposed to, but one many on Wall Street saw as a brilliant move.

Stories have circulated like mad that the company may be forced to cut its dividend. That combined with the overall energy weakness has just crushed the stock, which is now down almost 65% since April. SunTrust thinks the company could take steps so as to not have a huge cut in the dividend. Also, the company can preserve the balance sheet in the process. It is important to remember if oil continues its slide and the dividend is massively cut, more downside is likely.

Kinder Morgan shareholders are paid a massive 12.42% dividend. The SunTrust price target dropped to $28 from $38, and the consensus target is $36.25. Kinder Morgan closed Monday at $16.42.

SunTrust is standing beside its calls and that’s commendable. It’s easy to bail out, and many times it is much more difficult to stay in. If these stocks retrace just a third of the downside, the gains for investors would be outstanding.

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