The Dow Jones Industrial Average, the S&P 500 and the Nasdaq have again crossed into new all-time highs. The week of October 27 was rocked higher with many solid earnings reports out of the new darlings of Wall Street, and even the old tech names enjoyed their day in the sun. In case you haven’t gotten the memo, there is a raging bull market going on. While many investors are worrying about the next big market panic, the trend that is now well over five years old is that investors keep finding new reasons to buy stocks after every major sell-off.
24/7 Wall St. reviews dozens of analyst research reports each day of the week. We try to find new investing and trading ideas for our readers. Most analyst calls with Buy and Outperform ratings are coming with about 8% to 10% upside projections at this stage in the bull market. But then there are the highly speculative analyst calls in emerging biotech, small cap energy or metals, new technology outfits and other new sorts of companies. These speculative calls may come with upside of 30% or 50%, and in some cases they may be projecting upside of 100% or even higher to the listed price targets.
During the week of October 27, we tracked several highly speculative analyst calls for investors who do not shy away from risk. Consensus analyst price target data and valuation metrics are from the Thomson Reuters sell-side research service.
Be advised that we have added color on each of these analyst calls but some of that color intentionally sounds like the call needs to be questioned. It isn’t that we disbelieve all mega-upside calls. But 24/7 Wall St. wouldn’t want readers thinking we blindly believe in all analyst calls just because they were printed.
Most of these stocks are already more risky than most investors probably should consider. And almost none of these companies featured over time in the speculative arena would pass those suitability tests for widows and orphans.
One more issue to consider is that the stock market is at all-time highs. This means that some calls may feel like they are reaching too far out. If the market is up about 250% from the panic-selling lows from March of 2009, there is already a lot of good news and appreciation that has been priced into most stocks.
We have also seen some efforts to show baskets created around these picks in the recent past. The good news is that on last look one of the baskets was up about 40% since the start of summer. The bad news is that there are many big losers stacked in with the big winners — and that is a hallmark of highly speculative stocks: big hits and big misses!
Even investors who do not shy away from risk should treat any speculative analyst call with at least some caution. These calls should also only be used as a starting point or a supplement to more in-depth research efforts before deciding to buy or sell any of these stocks.
Here are seven highly speculative analyst calls made by various Wall Street and boutique firm analysts during the week of October 27, 2017, that have huge upside projections.
Embraer
Embraer S.A. (NYSE: ERJ) may not feel speculative as a solid jet-maker. The reality is that many investors still have a hard time thinking that anything from Brazil is not speculative these days. Embraer was raised to Outperform from Neutral at Credit Suisse on October 26. The firm’s $25 price target is well above the consensus target closer to $23.
What stood out here was that this call was a day ahead of earnings, and a share price drop of 3% to $19.23 on Friday probably feels like a little egg on the face when you consider the all-time highs and the massive gains seen in other post-earnings reactions. On a positive note, Embraer did announce that its firm order backlog at the end of the third quarter was worth $18.8 billion. Still, Embraer’s American depositary shares (ADSs) are down about 50% from their peak of just a few years ago. They have traded in a 52-week range of $17.58 to $24.95, and the market cap is about $3.6 billion.
Eiger BioPharmaceuticals
Eiger BioPharmaceuticals Inc. (NASDAQ: EIGR) keeps returning to the speculative calls. Its shares have almost doubled since we first covered this one, so it should be assumed that a lot of the good news already has been priced in. This stock also had a volatile week due to some new data presented, and then the company raised about $19 million in a discounted secondary offering (at $10 per share). Eiger intends to use the net proceeds of the offering to fund its portfolio of four product candidates. The firm BTIG was the sole book-runner for the small stock offering.
Eiger was reiterated as Outperform with a $34 price target, which compares to a $11.00 prior close, earlier in the week by Wedbush Securities. The call was after a recent physicians presentation of drug candidate data.
24/7 Wall St.Sierra Oncology
Sierra Oncology Inc. (NASDAQ: SRRA) was raised to Buy from Hold at Jefferies on October 23. Its price target was raised to $4.00 from all the way down at $1.50, and that compared to a $1.64 prior closing price. The stock reacted well, closing out the week at $2.15. Investors should heed that the market cap is a mere $112 million, and the 52-week trading range is now $1.10 to $2.20.
Jefferies called Sierra Oncology under-the-radar with a clinical program that shows innovation and value. The firm noted that Sierra is rapidly advancing SRA737 through dose-escalation in two clinical studies, and recent shows and competitive pharma updates helped raise the profile of the program.
SM Energy
SM Energy Co. (NYSE: SM) is a $2.1 billion market cap independent energy exploration and production company in crude oil and natural gas. Many investors may not be familiar with the Denver-based company, but this is the old St. Mary Land & Exploration Company, with an operating history of more than 100 years, and a company that has been public since the early 1990s. Its primary operations are in South Texas and the Gulf Coast, the Rocky Mountains and in the beloved Permian.
JPMorgan raised SM Energy to Overweight from Neutral on October 23, but what stood out here was that the firm’s $30 price target, which compared with an $18.41 prior close. That’s well over 50% upside, even if you consider that SM Energy shares closed up 7% on Friday at $19.19. The stock’s 52-week trading range of $12.29 to $42.45 shows how volatile the shares have been, and this was almost a $90 stock briefly in 2013 and 2014. The consensus target price is closer to $25.
TerraForm Power
TerraForm Power Inc. (NASDAQ: TERP) is a Brookfield-sponsored renewable power company with solar and wind projects located mostly in the United States. Its portfolio totals more than 2,600 megawatts of installed capacity and it has a mandate to acquire operating solar and wind assets in North America and Western Europe. The market cap here is $2.6 billion. TerraForm just raised $300 million this week in secured debt to repay the balance of its non-recourse portfolio term loan from December 2015.
TerraForm Power was raised to Outperform from Neutral with a $19 price target at Robert W. Baird on October 23. The prior closing price was $13.55. Merrill Lynch went with an Underperform rating and an $11 price objective, and the previous week JPMorgan issued a Neutral rating and a $13 price target. Needless to say, TerraForm Power has some mixed views by analysts, even if the one call stood out for upside. The shares have a 52-week range of $10.99 to $14.50. Though it closed out the week at $13.44, the stock had a consensus analyst target closer to $14 ahead of the calls.
24/7 Wall St.Voyager Therapeutics
Voyager Therapeutics Inc. (NASDAQ: VYGR) was started with a Buy rating and assigned a $35 price target at Canaccord Genuity on October 27. The prior closing price was $21.54, and the shares were up 7.2% at $23.09 late on Friday but closed up 4.8% at $22.57. This company has a mere $610 million market cap and is thinly followed by analysts.
Voyager is a clinical-stage gene therapy outfit targeting treatments for patients suffering from severe diseases of the central nervous system. Its lead clinical candidate is the VY-AADC01, but it is only in Phase 1b clinical trials to treat advanced Parkinson’s disease. The 52-week trading range is $8.10 to $25.99, and this stock has only been public about two years.
Western Copper and Gold
Western Copper and Gold Corp. (NYSE: WRN) was started as Buy with a $2.40 price target at Roth Capital on October 26. This was 100% higher than the prior closing price of $1.00. Its shares went as high as $1.09 on Thursday but ended the week at $1.05.
This tiny Canadian company has a mere $100 million market cap, and it has a 52-week range of $0.74 to $1.80. This company gave an update on its core “Casino Project” to signal upside and viability in recent weeks. That being said, this is a pre-revenue company.
Again, all analyst calls should be used as a starting point rather than as a sole tool. That is particularly true of small cap and highly speculative stocks.
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