The stock market’s fall from February through March was monumental, bringing on the fastest bear market we have seen in our lives. The stock market’s recovery, after the trillions of dollars of stimulus and as the reopening of the economy, has been so strong that the indexes have recovered most of their losses. Many investors feel confused about the massive swings, as the recession was so fast. They are looking for new ideas, or even old ideas that make sense, for how to be invested heading into summer and ahead of the election later in 2020.
24/7 Wall St. covers dozens of analyst reports each day of the week. That ends up being hundreds of calls each week. Most analyst ratings in Dow Jones industrial average and S&P 500 stocks generally had been coming with 8% to 10% in total return projections before the recession. Now some upside targets are higher while many remain muted. What is amazing is that some Wall Street analysts are still making new recommendations to their customers to buy stocks that may rise 100%, 150% or even over 200% in the year ahead.
Investors always should keep in mind that analyst calls sometimes do have not much more insight than sophisticated individuals and institutional investors. Other times the analysts have access to far better data. Regardless of how insightful or data-centric a big recommendation is, investors should never use any single analyst call as the sole reason to buy or sell a stock.
Another consideration for investors is that calls with massive upside potential generally imply a much greater risk. In our years of covering stocks that can double, we have found that they generally are focused on more speculative small-cap stocks. Some are occasionally still in the S&P 500 or are well known, but these are never in mega-cap or Dow stocks. Another characteristic about analyst calls for stocks to double is that they rarely come from bulge bracket firms like Goldman Sachs, Bank of America, Morgan Stanley or JPMorgan.
Ahead of Thursday’s pullback, the S&P 500 was up 5% heading into the last trading day of May 2020, and the index was already up 35% from its lowest close during the panic selling in March. That is unheard of, but much of the gains came from the new list of defensive stocks in a COVID-19 recession. Other sectors and large companies have so far not caught up. That is definitely true among some of the small caps and speculative stocks, and some of these stocks are mere shadows of their former selves.
While there is so much hype and hope on companies making vaccines, cures or treatments for COVID-19, we have eliminated the biotechs and other companies with a focus of targeting the coronavirus in their business model. Those all have some hope and merit, but too many companies with no backgrounds at all have issued ambitious plans in press releases and many of them still get no analyst coverage at all.
Again, analyst calls should only be one of multiple steps in any decision to buy or sell a stock. These are summaries of many of the analyst calls made since mid-May with stock price targets that are calling a double or more. Please note that some have seen their share prices tick up since the calls were made, so they would need to see pullbacks for a true “double the money potential” to the formal target prices.
Axcella Health’s Exponential Potential
Wedbush Securities started Axcella Health Inc. (NASDAQ: AXLA) as Outperform with a $28 price target on May 28. That compared with a prior $5.17 closing price, but the shares went up to $6.00 due to the target being so high. While exponential upside is being called for, investors should pay attention to the market cap being only $185 million ahead of the analyst report.