August is supposed to be one of the months that is historically not all that great for stock market investors. Despite the calendar, and despite slow earnings and major economic and international headwinds, somehow the S&P 500 just hit yet another all-time high. The Dow is barely behind it. All these moves and high market valuations have to make many investors wonder just where their money should be at work right now. One theme that keeps coming up is that investors want value and upside.
24/7 Wall St. reviews dozens of analyst research reports each morning to find new investing and trading ideas. This ends up being hundreds of analyst reports each week. One group of stocks that is often overlooked and misunderstood is the speculative stocks with low market caps or the stocks trading under $10.
The reality is that the speculative stock category can come with far greater upside than Dow and S&P 500 stocks. Still, that also means they come with more risk. Safer stocks with analyst upside projections generally come with upside targets that imply gains of 8% to 15%, to be expected at this stage of the bull market. In the speculative class of stocks, that upside might be well over 25% — or over 50%, or even 100%.
Investors have at least some caution here. The market seems overvalued today. We recently ran an analysis showing whether an overvalued market means you need to brace for a market correct or crash. It is important not to blindly believe that every upside target will be seen. If a market sell-off comes about, at the point it seems like it would hurt all equities to some degree.
Some serious issues can also get in the way of analyst price targets coming to pass. Analysts sometimes get their views and opinions wrong. Sometimes outside forces or unexpected events wreck a company. Sometimes management just falls short on its ability to deliver. Quite simply, there is no free lunch when it comes to investing. That is true for stocks, bonds, commodities and just about every other asset class.
It may not seem fair that you can make projections that come true only to find out that the market refuses to value it with the same upside that seemed rational in prior days, weeks or months. This is the unfortunate possibility, or reality, in investing. Some companies even manage to implode and disappear, leaving investors with nothing more than a write-off after all said and done.
Again, it is important to understand that low-priced and small-cap stocks generally come with big risks. That huge potential analyst upside comes with no assurances at all.
Here are six analyst stocks under $10 with large upside targets from the week of August 5.
After an earnings beat this past week, Genworth Financial Inc. (NYSE: GNW) shares surged, making the turnaround look more alive than ever. BTIG reiterated its Buy rating and its $5 price target, indicating upside of 45% from the $3.45 price late on Friday, and versus a pre-news price of $2.75. BTIG’s take:
We believe Genworth likely moved a step closer to the re-establishment of the operational stability across its franchise that is a prerequisite for the successful restructuring of the company.
Genworth’s consensus analyst price target is now under the current share price at $3.21, but very few analysts are covering the stock now. Genworth’s 52-week trading range is $1.57 to $5.75. 24/7 Wall St. gave a detailed turnaround view on the recent move based on charts and other key trading data.
Zynga Inc. (NASDAQ: ZNGA) managed to close down 6.7% at $2.77 on Friday after its earnings report. The report seemed better on the surface, but the revenue forecast was the drag here. Jefferies reiterated its Buy rating after the news, and they also reiterated a $5 price target on August 5. The firm noted that it was a solid quarter and that the outlook seemed overly conservative. Jefferies said:
By year-end we believe user metrics (which have mostly stabilized) could begin to inflect upwards for the first time in years. We note Zynga does not need a breakout hit to drive growth and profitability and we continue to think the risk/reward looks attractive at these levels especially with $1.25 per share in cash, investments, and real estate.
Zynga’s 52-week range is $1.78 to $3.02. Its consensus price target is $3.00, and its market cap is $2.4 billion.
Needham reiterated a Buy rating on Extreme Networks Inc. (NASDAQ: EXTR) on August 4, also raising its price target to $4.30 from $3.75. Shares were trading around $3.80 at the time, in a 52-week range of $2.27 to $4.55 and versus a consensus analyst target of $4.35.
Extreme Networks closed out the week at $3.98, and it has a $417 million market cap. This stock used to be on speculative buyout lists. Again, sometimes things just do not develop the way investors and analysts hope. Does it seem fair that a company like Extreme Networks comes with the same implied upside you might expect from a safer and better-heeled company? This may be one of those cases where the price targets need to rise.
Nimble Storage Inc. (NYSE: NMBL) was raised to Outperform from Market Perform at BMO Capital Markets on August 3. The firm’s $10 price target compares with a $7.21 prior close, but shares nimbly rose to $7.68 by Friday’s closing bell.
The consensus price target for Nimble Storage is $10.73, and the 52-week range is $5.64 to $27.40. Needless to say, it is nice to sometimes see upgrades occur closer to the bottom of a 52-week range, after much weakness rather than a capitulation downgrade where the analyst just could not take the pain any longer.
On August 3, Trillium Therapeutics Inc. (NASDAQ: TRIL) was started with a Buy rating at Ladenburg Thalmann, but what stood out was the firm’s $18 price target. The prior close was $9.21, but the upgrade created a gain north of $10.
The stock was at $10.28 late on Friday and ended up closing out the week at $10.19, so for the classic under $10 investor this one will have to be viewed only on pullbacks.
Freshpet Inc. (NASDAQ: FRPT) surged over 25% and was trading at $10.48 late on Friday, only to end the week even higher at a $10.60 share price. This pet food player also will have to be viewed by sub-$10 investors only on pullbacks.
On August 5, Stephens upgraded Freshpet to Overweight from Equal Weight. The firm’s price target was raised to $12 from $8, while the prior close was $8.26. Wedbush Securities reiterated its Outperform rating as well, but the firm’s price target is still $10. Freshpet has a consensus price target of $10.29 and a 52-week range of $5.60 to $16.88. Its market cap is a mere $355 million.
The week of July 29 had seven analyst stock picks under $10 for huge upside. These picks included Invensense, Groupon, Yamana Gold, Ballard Power and Brightcove.
Also from analyst calls during the week of August 5, 2016:
- Why Merrill Lynch says to buy biotech now.
- Jefferies’s top four financial picks ahead of the election.
- Four biotechs with well over 100% implied upside.
- Ten big stocks now have risen above fair value targets.
- Merrill Lynch’s solar stock picks.
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