Four Noteworthy Analyst Upgrades for Monday
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Sometimes an analyst issues a revised outlook or changes his/her rating but does not inform investors of the reasons behind the call. These typically move stocks on the call alone; the price target and outlook. However, some analysts provide detailed reasons behind the call and these are the outlooks that should be noted and used as part of your fundamental research. Therefore, I am taking a look at such outlooks and determining the best way to utilize the information.
Facebook finally traded lower on Monday after a three-month 60% return. The stock fell nearly 2.5% ahead of its “big announcement,” yet Deutsche Bank came to its defense with a massive upgrade and a $16 increase in the firm’s price target to $40. According to the firm, Mobile Newsfeed Ads is a “game changer” that could grow to $800 million in revenue by Q4, compared to $200 million in Q1.
It’s not a secret that Facebook has done a better job in recent months at monetizing its one billion users and that mobile has been successful. If the firm is correct, Facebook could very likely reach the bullish target, and prove its naysayers wrong.
Cisco rallied 2.3% after William Blair said that the company has moved past its “mid-life crisis” and is now “leaner, focused, and more self-aware.” The note to investors was somewhat simple, but the fact that Jason Ader was the analyst who made the call was a reason for the stock movement. Ader has been correct with numerous tech calls and with his firm initiating a “Buy,” some now think the company’s reform may finally be ready to produce sizable returns. The stock continues to trade near 52-week highs but is still cheap compared to its fundamentals.
Much like Facebook, shares of Capital One fell lower as the financial sector was weighed down due to fears regarding earnings. However, Goldman upgraded the stock with a $75 price target; the stock is currently priced at $65. The firm said that fundamentals should improve as acquisition-related costs decline.
However, the firm did note that it’s not expecting much in terms of increasing dividends or buybacks, but should trade higher because of better fundamentals. Capital One has benefited from a strong surge in its space over the last year. But if the company does not increase its dividend then it’s very possible that Goldman will be wrong; investors are almost demanding a better yield.
Hewlett-Packard & Fusion-io
JPMorgan had a busy day with upgrades and downgrades within the tech space. The firm upgraded both Hewlett-Packard and Fusion-io while downgrading others such as EMC and IBM. The firm stated that a bottoming in consensus estimates are improving, meaning that expectations are low and valuation is attractive for Hewlett-Packard, while IBM/EMC have reached a limit. This has been a consensus for analysts who are providing outlooks for HPQ.
On the other hand, Fusion-io has been volatile but was chosen as the firm’s top small/mid cap pick. JPMorgan says the company still has the lead in server-side data acceleration, and doesn’t see the trend changing anytime soon.
A firm that offers reasons for their call is taken more seriously due to providing substance for their reasons. However, like all analyst calls, there are always two sides to a story; and for every bullish call there is someone else who is bearish. Therefore, use this information as part of your research, but it shouldn't dictate your investment decision.
BrianNichols is long ALU. The Motley Fool recommends Cisco Systems and Facebook. The Motley Fool owns shares of Facebook and Fusion-io. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!