This last week may have moved to a light volume trading week, but the reality is that many investors continued buying the dips. This trend has been in place for over four years now, without a 10% formal stock market correction. 24/7 Wall St. tracks dozens of analyst upgrades, downgrades and initiations each day of the week. Some of these calls cover stocks to buy, and the typical upside for “Buy” and “Outperform” ratings generally come with 8% to 15% upside for Dow Jones Industrial Average and S&P 500 stocks.
What is always amazing out of these Buy and Outperform ratings is that some analysts maintain much more upside than you usually would expect. Some call for upside of 35%, 50%, or even over 100% in some extreme cases. This last week was no exception. 24/7 Wall St. noticed several calls in that 50% to 100% (one even much more) implied upside category.
Before investors get too excited about huge upside in an analyst call, there are many things to consider for caveats. They generally assume a positive or at least flat market. Analysts often make silly mistakes in their assumptions. Analysts generally have no better information than sophisticated and institutional investors. And sometimes what was expected just turns out to have been incredibly wrong.
There is also a huge degree of risk in most analyst picks with upside of 50% and higher. The calls are rare, and in some cases these businesses are new or are so volatile that they could have total business risk ahead. Many of these analyst calls were also in the speculative biotech and battered energy sectors. With those caveats in mind, here are the analyst calls tracked by 24/7 Wall St. this last week where the implied upside was nearly 50% to 100%.
Alcoa Inc. (NYSE: AA) was maintained as Buy at Stifel on Tuesday, but the firm’s price target was cut to $14.00 from $15.00 (versus a $9.32 prior close). This call left right at 50% when it was made, but Alcoa closed up at $10.12 last Thursday. That means that Alcoa’s 50% upside is there only on pullbacks (assuming Stifel is correct). Alcoa has a consensus analyst price target of $11.38, and Stifel’s target of $14.00 is now tied for the official highest analyst target price.
Alcoa has a 52-week trading range of $7.81 to $17.10. Imagine finding an analyst bullish on metals these days.
Nabors Industries Ltd. (NYSE: NBR) was raised to Outperform from Neutral at Credit Suisse last Monday, and the firm’s price target was raised to $12.00 from $9.00. This was versus a $7.87 prior close, which was more than 50% upside at the time. The problem here is that Nabors closed at $8.87 on Thursday, so the new implied upside would be closer to 35% unless the stock pulls back further again.
The consensus price target for Nabors is $12.78, above the $12.65 consensus when the call was first made; and its 52-week range is $7.84 to $16.99.
QEP Resources Inc. (NYSE: QEP) is another one that rose after its call, but it was started as Buy with a price target of $20 at Cantor Fitzgerald mid-week. This oil exploration and production outfit was offering an implied upside of 60% from the prior $12.48 close if the call was right, but the close of $13.38 on Thursday was leaving an implied upside of 49.5% and another 0.6% from the dividend.
QEP has a consensus analyst target of $20.53, a 52-week range of $11.03 to $24.04, and it has a $2.36 billion market cap.
Oncothyreon Inc. (NASDAQ: ONTY) was started as Buy with a $4.00 price target at Jefferies on Wednesday. The prior close was $2.37, and Friday’s closing price was $2.45. That still leaves some 63% in implied upside here for this cancer-focused biotech outfit, but the market cap is less than $250 million.
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