Stocks have become quite choppy going into the end of 2015, and the strength of the bull market’s nearly seven-year tenure is now up for question. Still, despite Wall Street looking for a positive but choppy S&P 500 in 2016, the reality is that investors have bought every single pullback for more than four years now.
24/7 Wall St. reviews dozens of analyst reports each day of the week to find new investing and trading ideas for our readers. Some of these analyst reports cover stocks to buy. While most analyst Buy and Outperform ratings come with upside of 8% to 15% for more or S&P 500 stocks, some analysts are far more aggressive. Some of the analysts see upside of 25%, or even all the way up in the 50% to 100% projected upside.
The first thing to consider here is that if analysts see 50% to 100% then they are generally far more aggressive. You almost never see calls like that in Dow stocks, and they are often in companies that are very volatile or that come with some obvious bruises.
In almost all these wild upside stocks, conservative investors should not be involved. It turns out that some analyst calls simply miss the mark, have wrong assumptions or end up wrong due to other outside forces. Wall Street analysts also generally have no better insight about companies and sectors than institutional and sophisticated investors, and those in the “smart money” have found themselves wrong more than just a time or two.
More warnings can be made, but hopefully the major one to take here is that aggressive analyst price targets with close to 50% or up to 100% upside almost automatically means that there is a larger degree of risk. And note that some of these calls are in the battered oil and gas sector and in biotech, so there is generally more risk than normal at this time.
To prove a final point: only two S&P 500 stocks have doubled so far in 2015, and only nine are up 50% or more (including the two that doubled). Some 15 S&P 500 stocks are down more than 50% so far in 2015. Here are 14 analyst stock picks from this past week with roughly 50% to 100% implied upside for the year ahead.
On Tuesday, Cypress Semiconductor Corp. (NASDAQ: CY) was started as Outperform with a $14.00 price target at Oppenheimer. The stock closed at $9.63 prior to the call and closed at $9.52 on Friday. It has a consensus analyst price target of $13.13 and a 52-week trading range of $8.11 to $16.25. The chip wave consolidation is setting up for a period of key winners and key losers.
Cypress Semiconductor has an implied upside of over 47% to the Oppenheimer target, and that would be more than 50% upside if you include the dividend. Oppenheimer likes the company’s focus on auto and industrial segments now being more than half of its business, while the competitive pressure in mobile chips been removed handily from its revenue mix.
Jefferies raised Encana Corp. (NYSE: ECA) to Buy from Hold with a $9.50 price target on Tuesday in another aggressive analyst call saying “enough is enough” in the battered oil and natural gas sector. Encana closed down over 8% at $5.54 on Monday, and it got even worse by Friday with a close of $5.02. Its consensus price target has fallen to $9.91 from over $10.00 when the call was made.
Encana’s prior 52-week trading range was $5.43 to $14.73, but that 52-week low is now $4.86. Jefferies said that Encana’s severe relative share price weakness was exacerbated by a surprise dividend cut, but this appears to be prudent, and the stock looks inexpensive at a discount to the firm’s risk-adjusted asset value. This implies 90% upside plus the dividend, assuming that Jefferies did not look at the valuation tables upside-down.
Energy Transfer Equity
Late in the week, Energy Transfer Equity L.P. (NYSE: ETE) was initiated with a Buy rating and was assigned a $23.00 price target at Jefferies. Yes, another bottom-fishing effort in oil and gas infrastructure. This was versus a prior $11.77 close after a 9% drop, but the units of this master limited partnership (MLP) fell another 5.7% to $11.09 on Friday.
Energy Transfer has a consensus price target that has fallen to $33.94 from $35.31 prior to the call, and its 52-week range has now fallen to $10.85 to $35.44. Trusting calls for 100% upside in MLPs just feels like it is getting really old now, but that was their call. See the Williams call below as these are linked.
Pandora Media Inc. (NYSE: P) had a wild ride around the new government-mandated royalties, but the huge enthusiasm from Thursday was tempered by Friday’s close of $14.12. Pandora was reiterated as Buy with a $24.00 price target at Canaccord Genuity on Thursday.
Pandora’s consensus price target actually rose to $20.55 from $18.76 before the news, and the 52-week trading range is $11.38 to $22.60. Does 70% upside feel right for Pandora’s new mixed business model and very choppy performance history? If you want a balance to this call, FBR Capital Market upgraded the stock to a mere Market Perform from Underperform and it sees $16.00 as a fair value.
In another attempt to bottom fish in the energy sector, Williams Companies Inc. (NYSE: WMB) was raised to Buy from Hold at Jefferies on Friday. The $43.00 price target was versus a prior close of $23.70, and it looks even more aggressive after a 9% drop to $21.54 on Friday. Williams now has a consensus price target of $44.50 and its 52-week range has fallen to $21.50 to $61.38. This call is deal linked with the implied value of the Energy Transfer deal.