This year just hasn’t turned out the way many investors expected when it began. The market tanked, then recovered, and then was within striking distance of highs. Even the “sell in May and go away” mantra may not work, and the Federal Open Market Committee (FOMC) might be unable to raise rates like it has desires. Now the S&P 500 has reached a value of 18 times expected 2016 earnings, something not seen since September 2009.
24/7 Wall St. is always on the hunt for undiscovered opportunities and hidden value. Each morning we review dozens of analyst upgrades and downgrades. This ends up being a review of hundreds of analyst calls each week.
Some analyst calls are about stocks to buy, and some calls come from the likes of Goldman Sachs and Merrill Lynch. Other calls may have Sell ratings, and some may come from boutique firms.
When analysts issue buy ratings on Dow or S&P 500 stocks, they often offer upside of just 10% to 15%. But then there is a different category entirely. That is the stocks trading under $10 per share. Analyst calls in low-priced stocks and smaller companies often come with upside of 25%, 50% or even above 100%, if the calls prove to be right.
It is imperative for investors not to trust any analyst call blindly. There is no free lunch on Wall Street. Small-cap or low-priced stocks can come with huge risks. Some of these underlying businesses could ultimately fail or cease to exist in the years ahead.
Investors also need to consider that sometimes analysts just get it wrong. Sometimes the underlying fundamentals change, and sometimes markets become more risk averse and the revaluation crushes small speculative stocks. And other times it just so happens that companies fail to live up to their potential, sometimes not by any fault of their own.
24/7 Wall St. has identified eight analyst stock picks in shares priced under $10 for the week ended June 10. Again, these are likely far riskier than most Dow and S&P 500 stocks.
Credit Suisse raised AK Steel Holding Corp. (NYSE: AKS) to Outperform from Underperform on Wednesday, June 8. The steel company was also given a $7 price target, much higher than the $4.58 close the prior day. It had a consensus analyst price target of $4.18, and it now has a 52-week trading range of $1.64 to $5.50. Then a Friday call came from Jefferies, which only reiterated a Hold rating, but the price target was lifted from $4.25 to $5.00.
Shares of AK Steel closed down 2% on Friday at $4.96 with the weak market, and the new consensus price target is listed only as $4.48.
On June 8, Aerohive Networks Inc. (NYSE: HIVE) caught some jive from Wunderlich, with the firm starting coverage with a Buy rating and assigning an $8 price target. The prior close was $6.18, and shares ended the week at $6.35, after its 1.6% gain defied the stock market weakness. Its consensus price target is $7.52, and the 52-week range is $4.08 to $8.35.
Carbonite Inc. (NASDAQ: CARB) had a rough week, and it may be in the Under $10 Club only because of waves of insider selling putting more shares on the market. Still, B. Riley started the storage and backup data provider with a Buy rating and a $15 price target on Friday, June 10.
This call on Carbonite implied more than 50% upside from the prior $9.37 closing price, and it still implied over 50% upside from the $9.60 price late on Friday. The consensus analyst target is only $11.00, and the 52-week range is $6.50 to $12.26.