The stock market had a solid week, and the notion of “sell in May and go away” seems to have not prevailed so far in 2016. Investors keep proving that they will buy the dips, even after the crazy selling in the first six weeks of 2016. The Dow was up 400 points from its lows of the week at one point on Friday, and the index is now positive for the year.
24/7 Wall St. reviews dozens of analyst research reports each morning of the week. This ends up being hundreds of calls each week. Our goal is to find new investing and trading ideas for our readers. Some of these analyst reports cover stocks to buy, and other reports feature stocks to sell or to avoid.
Of those reports with Buy ratings, many of these analyst calls end up having upside targets or having opinions that are just too big to ignore. The typical Dow or S&P 500 Index upgrade or new Buy rating typically comes with upside projections of 10% to 15%, so you have to consider that when an analyst is telling you to look for upside considerably higher. Some of these analyst calls stood out because they were just different from the consensus views.
Before chasing any analyst call, investors must understand that this should be only a starting point rather than an end decision. After all, analysts often have no more information than the rest of us. They also can end up being seriously wrong in their assumptions. Other times predictions fail just because things change or they just don’t work out.
These were seven top analyst upgrades, which mostly came from blue-chip companies or industry leaders, for the week ending May 27.
Alcoa
On May 23, Alcoa Inc. (NYSE: AA) was raised to Buy from Neutral at Merrill Lynch, and the firm’s price objective was raised to $11.00 from $10.50. This was versus a $9.11 prior close, and Alcoa shares were trading at $9.35 on Friday’s close. Alcoa may no longer be a Dow stock, but it is still the first large cap to report during each earnings season that has a broader economic reading to it. Merrill Lynch sees better Alcoa results ahead from Firth Rixson ramping up and a pickup in jet engine demand. Do tariffs help too?
Alcoa had a consensus analyst price target of $10.86 before the call, and that target was $10.89 on Friday. Alcoa has a 52-week trading range of $6.14 to $13.05.
ADM
BMO Capital Markets raised Archer Daniels Midland Co. (NYSE: ADM) to Outperform from Market Perform with a price target of $48 on May 24. This compared with a $40.44 prior close, and ADM had a consensus price target of $39.00 at the time. Citigroup also put on a new Buy rating, up from Neutral, this past week. That left ADM with a $41.00 consensus price target on Friday. Still, the share price of $43.22 was higher than that target. The 52-week trading range is $29.86 to $53.31.
Home Depot
Home Depot Inc. (NYSE: HD) was started with a Buy rating and was given a $158 price target at Topeka Capital Markets on May 24. This was versus a prior $131.42 close, and the shares closed at $133.94 on Friday. Wedbush also raised 2016 earnings expectations marginally during the week. These calls came the same week that Home Depot updated its data breach costs. The consensus price target rose a few cents last week to $147.41. The 52-week range is $92.17 to $137.82.
Pier 1
When Topeka Capital Markets started Pier 1 Imports Inc. (NYSE: PIR) with a Buy rating on May 24, the stock was given a whopping $12 price target. What matters here is that this compares with a $5.48 prior close, and Topeka now has the highest price target of all analysts. Pier 1 is one of those stocks that has been widely hated by investors for so long that you rarely see such big upgrades. Its consensus target price is $6.52, and it has a 52-week range of $3.76 to $13.58.
Staples
Merrill Lynch raised Staples Inc. (NASDAQ: SPLS) to Buy from Underperform May 23. The firm also gave a $10 price objective, almost 25% higher than the $8.10 closing price before the call. This may not seem like much upside, but when was the last time you heard anything positive about Staples? Merrill Lynch sees an attractive valuation after shares fell more than 20% in just two weeks. This was even after the merger failed to get approvals and wiped out much value here.
Staples now has a consensus analyst price target of $9.64, higher than the $9.50 consensus before the Merrill Lynch call. It has a 52-week trading range of $8.00 to $16.74. Shares were up six days in a row as of Friday’s close at $8.71.
21st Century Fox
On May 24, Twenty-First Century Fox Inc. (NASDAQ: FOXA) was reiterated as Outperform and the price target was raised to $40 from $37 at Credit Suisse. Note that Credit Suisse added the stock to the U.S. and Global Focus Lists, replacing Time Warner. The company raised how it values Hulu up to a whopping $25 billion. If Credit Suisse is right, this leaves 38% upside for investors from the $28.93 share price on Friday’s close. The consensus target price is $34.10, and the 52-week range is $22.66 to $34.70.
Vivint Solar
Vivint Solar Inc. (NYSE: VSLR) might have been the analyst upgrade of the week. After all, anything tied to solar has been lights-out for investors. The stock was raised to Buy from Hold at Deutsche Bank on May 27, and the price target went to $7.50 from $3.50 (versus a $2.63 prior close). The shares were up 6% at $2.80 initially after the call, but by Friday’s close that gain was over 42% to $3.75. Trading volume was well more than 10 times normal for this call. Vivint’s 52-week range is $2.16 to $16.00.
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