Four Stock-Moving Upgrades Worth Noting
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; 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.
After a five-year 90% loss shares of Alcatel-Lucent had a low rating by just about every analyst who covered the stock. But as it has rallied in the past few months, more and more analysts have begun to upgrade the stock, and a neutral from Citi is a big deal.
Citigroup stated its reasons for the upgrade were an improved carrier spending environment and lower bankruptcy risk following the company’s refinancing deal with Goldman Sachs. Shares of Alcatel rallied higher by 3% on Wednesday following this upgrade, and it’s very likely that more firms will follow the lead of Citi as Alcatel continues to restructure its large business.
Technology company Netsuite is now trading near all-time highs after being upgraded by Lazard to Buy. According to Lazard, the company’s cloud business should translate into strong earnings thanks to growth in e-commerce and in apps. The firm believes that the company’s recent investments will allow it to beat expectations for the current quarter and will force the company to raise guidance for the future.
This is quite a bullish call from the firm, on a stock that is trading with a price/sales of 16.46 and was recently downgraded by Goldman Sachs thanks to valuation-related concerns. Over the last few years it has been a great performer, but is very expensive compared to fundamentals. Therefore, I’d avoid this one.
It has been a rough couple years for metal mining companies, yet over the last month, shares of Platinum Group have rallied 42% and continued on Wednesday after being upgraded to Outperform. The firm is now expecting a price of $1.75, a large premium over its current price of $1.15.
Apparently, RBC believes the company has hit a gold mine, and although we don’t know yet, the potential for its Waterberg deposit could be fundamentally huge. The firm believes the deposit will continue to surface. This “surface” could result in resource expansion and open pit mining for the company. As a result, it’s a speculative play, but one that RBC believes is likely. I suggest further research on this company.
European drug company Novartis reached new highs on Wednesday after reporting strong earnings and being upgraded by Citigroup. Over the last decade, Novartis has been a company that gives back to its shareholders. However, Citigroup believes that the announcement of Chairman Daniel Vasella’s resignation will be good for the company. The firm believes the management move will result in streamlining of the company’s group structure; monetization of its Roche stake; and a re-initiation of their buyback program.
Personally, I look at the fundamentals, and this is a massive company with a strong quarter. Hopefully, Citi is correct in its assessment, but I am not sure how one man could have prevented all of those catalysts over the last five years. Overall, I’d say it’s worth the buy due to fundamentals, and if the noted catalysts occur then it’s an added bonus for investors.
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 Alcatel-Lucent. The Motley Fool recommends Netsuite. 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!