If 2016 is not one of the more weird years in financial markets, then what honestly is? Now we have an unexpected Brexit that threatens the future structure European Union to add to the mix. As if terrorism, an odd-ball presidential election, a global slow down, quantitative easing, a strong dollar, a weakening US economy and low oil (among a few dozen other things) were just not enough.
24/7 Wall St. is always on the hunt for undiscovered opportunities and hidden value in the financial markets. Even in hard times there are always some opportunities that can be found. Each morning of the week we review dozens of analyst upgrades, downgrades and initiations; this ends up being hundreds of analyst calls each week. These calls are made from bulge bracket firms like Goldman Sachs and Merrill Lynch all the way down to regional and boutique firms whose investor reach and influence is generally smaller.
One category of analyst calls that often comes with great upside is in the small-cap and low-priced stocks. Some of these stocks trade under $10 per share. It is frequent that in this category of cheap stocks and small cap stocks where the projected analyst upside just seems ludicrous. Other times it seems more reasonable, and many cases the stocks have traded at those levels before.
When analysts give Buy ratings to Dow or S&P 500 stocks, they typically are calling for upside of 8% to 15%. In the lower-priced and small-cap stocks, that upside projection from analysts can be 25%, 50% or even over 100%. This means that the sub-$10 stocks and small cap stocks often come with far greater risk than traditional Dow or S&P stocks.
24/7 Wall St. tries to warn its readers endlessly that it is best not to trust any analyst call blindly. The reality is that there is no free lunch on Wall Street. Where else can you get your call right, but the timing can be days or hours off, or a technicality or glitch in the markets keeps you from making what feels like your deserved riches?
To highlight just how much risk there is in some of these, some small caps or low-priced stocks could ultimately fail or cease to exist in the years ahead. Investors also need to consider that sometimes analysts just get it wrong. And sometimes unrelated outside forces wreck a great upside story. Biotech, fad investing (e.g., rare earths, 3D printing), micro-cap growth and even battered turnaround candidates just often fail to live up to their potential.
Here are seven of the analyst calls in stocks monitored by 24/7 Wall St. that traded under $10 per share in the week of June 25.
American Superconductor Corp. (NASDAQ: AMSC) was started with an Outperform rating at Oppenheimer on June 21. The firm’s 12-month to 18-month target price was set at $12.00, which was versus a prior $8.37 for implied upside north of 40%. Friday’s sell-off knocked off 6.2% from a prior $8.73 close down to $8.19 by the closing bell. Oppenheimer noted that AMSC has built a portfolio of value-added intellectual property and is positioned to benefit in both its Windtec and Gridtec businesses from long-term secular trends. Investors should keep in mind that AMSC has a spotty track record and it even had to do a 1 for 10 reverse stock split back in 2015.
Gold Fields Ltd. (NYSE: GFI) was a big winner on Friday’s Brexit news due to being tied to gold’s upside. It was raised to Outperform from Market Perform at RBC Capital Markets on June 22. This gold upgrade was based upon valuation, although it was not a part of 5 gold stocks trading under book value. Gold Fields closed down 4% at $4.08 on Tuesday ahead of the call, but a 9.4% gain on Friday alone had it close out the week at $4.64. Gold Fields has a consensus analyst price target of $4.39 and has a 52-week range of $2.04 to $4.76.
Sunrun Inc. (NASDAQ: RUN) was started with an Outperform rating and 12-month to 18-month $8.00 price at Oppenheimer on June 21. The stock fell 5.1% on Friday down to $5.59, with a consensus analyst target north of $12.00 and a 52-week range of $4.86 to $14.95. Oppenheimer thinks Sunrun has significant growth potential within the residential solar market and a differentiated financing strategy that will benefit from per watt cost efficiencies through 2018.
Unisys Corporation (NYSE: UIS) is rarely covered by analysts. Now the somewhat lingering IT-services player was started with a Buy rating at SunTrust Robinson Humphrey on June 22. More importantly, Unisys was assigned an $11.00 price target versus a $7.50 prior closing price. Shares were still as high as $8.26 on Thursday, but the Brexit sell-off on Friday knocked out a whopping 10.2% to $7.42. Unisys has a consensus analyst price target of $16.50, but from only a handful of analysts, and it has a 52-week range of $7.04 to $21.20. If this call sounds too good to be true, Susquehanna reiterated its Positive rating and $12.00 price back in May based upon hopes of more government spending.
WPX Energy, Inc. (NYSE: WPX) participated with its own sell-off on Friday’s Brexit reaction with a drop of almost 9% to $9.06. Imperial Capital already has an Outperform rating on WPX, but the firm raised its target up to $13.00 from $11.00 on June 23. This latest drop in the price implies upside of 43% for an independent oil and natural gas exploration and production outfit with a $3 billion market cap. WPX has a consensus analyst price target of $12.17 and a 52-week range of $2.53 to $13.02.
Alcobra Ltd. (NASDAQ: ADHD) was started with a Buy rating and was given a $12.00 price target at Roth Capital on June 22. While few details were out on this call, the prior $4.10 closing price implied close to 200% upside. Alcobra did close up 2% on the call, but shares closed out the week at $4.15. This stock has very thin volume, has a consensus analyst price target close to $12.00, and has a 52-week range of $3.15 to $9.50. The company’s market cap is only $114 million, but it is in mid-to-late stage studies for various age brackets of attention deficit hyperactivity disorder.
HC2 Holdings, Inc. (NYSEMKT: HCHC) was started with a Buy rating and was given an $8.50 price target by B. Riley on June 21. Very little information was seen about the details of the call and almost no analysts follow this small $152 million company. HC2 closed down over 4% on Friday at $4.28, and it has a 52-week range of $3.25 to $9.15.