The week of June 17 did not turn out the way many of the bulls were hoping, despite Janet Yellen and the Federal Reserve signaling that a much more muted rate hike path is coming. The Dow Jones Industrial Average closed down almost 200 down for the week at 17,675, and the Brexit vote outcome still weighs.
What 24/7 Wall St. has noticed over and over is that investors are still looking for opportunities. They are using analyst research reports to find hidden gems or under-covered stocks. They are also busy buying major stocks during market pullbacks, despite the S&P 500 having hit a peak value of 18 times expected 2016 earnings.
24/7 Wall St. is always on the hunt for undiscovered opportunities and hidden value. We review dozens of analyst upgrades and downgrades each morning of the week, and this of course ends up having been hundreds of research calls each week.
Some analyst calls cover stocks to buy and others cover stocks to sell or avoid. Investors know that traditional bull market Buy and Outperform ratings come with average upside of 8% to 15% for most Dow and S&P 500 stocks. Then there is the category of stocks trading under $10, or stocks with market caps well under $1 billion. These stocks often have only a few analysts covering them, and sometimes the implied upside to the price target is up 35%, 50% and sometimes even more than 100%.
Make no mistake in understanding that the risk in these higher target prices, low market caps and low-priced stocks is massively higher than in Dow and most S&P 500 stocks. Here is proof: the S&P 500’s smallest market cap is $1.5 billion, and not even 10% of the S&P 500 has a market cap under $5 billion. And for low share prices in the S&P 500, only seven trade under $10. Only three are under $9.00, and only one is under $5.00.
It is imperative for investors not to trust any analyst call blindly. As we say over and over, there is no free lunch on Wall Street. Small-cap or low-priced stocks can come with massive risks. Some of these underlying businesses could eventually fail, and some can cease to exist in the years ahead.
Investors also need to consider that sometimes analysts just get it wrong. Sometimes markets become more risk averse, which crushes micro-cap stocks and small speculative stocks. Sometimes companies fail to live up to their potential, and sometimes you see things go wrong that were not even the company’s fault.
24/7 Wall St. has identified nine analyst stock picks in shares priced under $10 for the week ended June 17 in which analysts see huge upside, if their predictions prove right.
Advanced Micro Devices Inc. (NASDAQ: AMD) was the double-double for the week, receiving two very favorable upgrades. Jefferies raised AMD’s price target to $5.50 from $4.50 on June 13, and not just because of the virtual reality upside.
AMD saw its rating raised to Buy from Hold and the price target nearly doubled to $6.00 from $3.25 at Canaccord Genuity late in the week. Jefferies has liked AMD’s path forward on virtual reality and learning, but Canaccord Genuity went so far as to predict the return to profitability.
AMD bucked the weak trends of the broader selling this week. A gain of 10.7% to $5.26 on Friday was up from $4.32 the prior week. AMD’s 52-week range is $1.61 to $5.27 – and that high was from Friday as well.
Wedbush Securities raised Achaogen Inc. (NASDAQ: AKAO) to Outperform from Neutral on June 14, and the price target was raised to $10 from $7, compared with a $3.79 prior closing price. Shares were up over 8% at $4.12 in the immediate reaction.
Achaogen shares closed out the week at $4.70, still implying more than 100% upside. This company targets antibacterials to treat multidrug-resistant gram-negative infections, but its market cap is a mere $86 million.
On June 15, Capricor Therapeutics Inc. (NASDAQ: CAPR) was started with a Buy rating and price target of $12 at Roth Capital. What stands out here is that Capricor closed at $3.54 ahead of the call, but even a drop of 6% on Friday still had it end the week at $4.46.
Capricor targets cardiovascular disease, has a mere $80 million market cap and has a 52-week trading range of $1.88 to $5.48. After the call came word from the company that its CAP-1002 study demonstrated durable efficacy signal over 12 months in patients with advanced heart failure.