Investing

After an Implosion, Reviewing Analyst Stocks Called to Rise 100% or More

Jon C. Ogg

Published: January 16, 2018 1:10 pm

Last Updated: January 12, 2020 4:27 am

24/7 Wall St. reviews dozens of analyst research reports each day of the week. This ends up being hundreds of analyst calls over the course of a month, and it ends up being thousands of analyst calls over the course of each year. It’s no secret that there is a raging bull market in stocks now that 2018 is underway, and that’s on the heels of the Dow rising 25% and the S&P 500 gaining over 19% in 2017.

With investors wanting to look for new ideas, sometimes these analyst research reports offer a great starting place before making an investment decision. Some of the calls also have the risks of being a total loss to investors who are not careful or who stick with the same thesis for too long.

Eiger BioPharmaceuticals Inc. (NASDAQ: EIGR) was in the highly speculative class of stocks that analysts had predicted the stock could double and then some. But after a near 50% loss in shares in a single day of trading, it is important to think about what this means for Eiger and for other analyst calls in which analysts are calling for 50%, 100% or even 200% or more in upside. Eiger was among seven analyst picks that could rise exponentially from June of 2017.

Until the big analyst assumptions about tax reform were being turned into far higher target prices, analysts issuing Buy and Outperform ratings were targeting upside of 6% to 8% on the lower end and about 10% to 15% on the higher end for Dow and S&P 500 stocks. What does it tell you when upside projections of 50% or 100% or exponential upside are being made?

Speculative stocks have a great allure. After all, everyone wants to own the next big thing. Still, sometimes investors can lose their shirts. It is imperative to keep track of how speculative analyst calls look and perform over time. Some of the stocks do double, triple or rise exponentially. Some of them keep rising, but sometimes the same stock can easily come crashing back down. That’s the nature of highly speculative stocks. Speculative stocks can be very rewarding, but it’s obvious that they can also be hazardous to your wealth and health.

It is imperative to keep a close eye and have trailing stops or limits in place for big winners and big losers. Gradually selling out a portion of the gains on the way up will lock in gains, and gradually being stopped out on the way down will hopefully keep investors from getting suckered into trusting an analyst call just because it sounds good and aggressive.

Investors have to be careful and disciplined to know what they are investing in. That is true enough for the large companies and exchange traded funds, but it’s exponentially true for the highly speculative small-cap stocks.

24/7 Wall St. wanted to review the grouped “speculative stocks that could double” that Eiger was first featured in. Eiger actually did double, and others have come close to doubling too — but some have flopped hard. A brief summary has been provided on each, with a deeper note on each.

Eiger BioPharmaceuticals: Gained over 100%, but still flopped to give it all back!

Eiger BioPharmaceuticals was assumed in coverage with an Outperform rating by Wedbush Securities on June 21, and the prior price target of $28 was raised to $34 at that time. Its prior close of $6.75 indicated exponential upside, and Eiger was having a stellar January ahead of its $16.00 closing price last Friday. That’s a gain of 137%, but a 46% drop took Eiger back down to $8.58 on Tuesday. Even if it is still up from last summer, this is a huge disappointment, with two analysts trying to defend the stock.

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Aqua Metals: Never doubled, shares just went lower and lower.

Aqua Metals Inc. (NASDAQ: AQMS) was started as Buy and assigned a $25 price target at Rodman & Renshaw on June 22, 2017. This was against roughly $12 a share at the time. Aqua Metals is volatile as it has developed AquaRefining to recycle lead acid batteries. The 52-week high was $22.75 when the call was made, but shares have tanked to about $2 now, and its current 52-week high is just $5.80. Holding this all the way down would have been close to 80% loss with no limits and trailing stops.

Fairmount Santrol: It’s come back up 60% but was disappointing!

Fairmount Santrol Holdings Inc. (NYSE: FMSA) was trading at $3.73 when Jefferies lowered its target to $8 in June 2017, still more than 100% upside at the time. Its stock ended up going as low as $2.50 after that call, but it was last seen trading at $6.01 for a gain of 60%.

Helix Energy: Up about 70%, but no double!

Helix Energy Solutions Group Inc. (NYSE: HLX) is in the business of offering specialty services to the offshore energy industry. Cowen issued an early-June transfer of coverage report with an upgrade to Outperform — and its target was raised to $10 from $8 — as a top pick where “the low case is baked into the price with a very attractive risk-reward profile.” Its shares were at $4.90 back then, and the stock was last seen trading at $8.30. That’s up 70%, but still not a double.

Intellia: Up 40%, but no double yet!

Intellia Therapeutics Inc. (NASDAQ: NTLA) was part of a larger speculative buy grouping at Jefferies on June 22, 2017. The firm’s Buy rating with a $36 price target implied upside of 141% at the time, due to being at the forefront of gene-editing to induce permanent changes. Intellia shares were closer to $15 when Jefferies made the big call, but it’s now trading closer to $21.10, for a gain of 40%.

Nutanix: Made it to a double!

Nutanix Inc. (NASDAQ: NTNX) was part of a set of Focus List calls from Credit Suisse back around June 7, 2017, when the firm issued an Outperform rating and a $38 price target. It was trading at $18.67 at the time, but the shares were last seen at $37.50. That effectively met its target of a stock to double, with the timing purely coincidental.

Recro Pharma: Up 36%, but no double!

Recro Pharma Inc. (NASDAQ: REPH) was reiterated as Buy with a $21 fair value estimate at Janney on June 14. While this was up over 200% from the $6.47 prior closing price, its IV-Meloxicam was touted as leading to more opioid-free recovery after surgery. Recro Pharma shares were last seen at $8.85, for a 36% price change. Still, its shares have so far come nowhere remotely close to doubling or tripling from last summer.

Analysts make a wide degree of assumptions about companies, but investors almost never see an analyst issue a 50%, 100% or exponential upside target on a stock that’s already in the Dow or S&P 500. You only see such huge upside calls made in speculative stocks, and most of those speculative companies have a market value that is in the tens of millions or a few hundred million dollars at the time.

This is just more proof that some speculative stocks can double but then still end up giving all their gains back (and then some). And some other speculative stocks only cause misery to their investors. As always, caveat emptor.