Four Noteworthy Analyst Calls on Tuesday

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.

<table> <tbody> <tr> <td> <p>Company</p> </td> <td> <p>Ticker</p> </td> <td> <p>Firm</p> </td> <td> <p>Call</p> </td> </tr> <tr> <td> <p><strong>Teco Energy</strong></p> </td> <td> <p><span class="ticker" data-id="205662">(NYSE: <a href="http://caps.fool.com/Ticker/TE.aspx">TE</a>)</span></p> </td> <td> <p>UBS</p> </td> <td> <p>Neutral</p> </td> </tr> <tr> <td> <p><strong>American International Group</strong></p> </td> <td> <p><span class="ticker" data-id="202761">(NYSE: <a href="http://caps.fool.com/Ticker/AIG.aspx">AIG</a>)</span></p> </td> <td> <p>Bernstein</p> </td> <td> <p>N/A</p> </td> </tr> <tr> <td> <p><strong>Halliburton</strong></p> </td> <td> <p><span class="ticker" data-id="203806">(NYSE: <a href="http://caps.fool.com/Ticker/HAL.aspx">HAL</a>)</span></p> </td> <td> <p>Argus</p> </td> <td> <p>$48 PT</p> </td> </tr> <tr> <td> <p><strong>Southern Copper</strong></p> </td> <td> <p><span class="ticker" data-id="223793">(NYSE: <a href="http://caps.fool.com/Ticker/SCCO.aspx">SCCO</a>)</span></p> </td> <td> <p>BB&T</p> </td> <td> <p>Underweight</p> </td> </tr> </tbody> </table>

Upgrades

UBS had been quite bearish on the long-term prospects for Teco Energy over the last year, with a “Sell” rating. However, the firm upgraded the stock to “Neutral” and gave it a $17.50 price target due to expected higher cash flows from business line distributions and bonus depreciations. Furthermore, the firm noted that lower capital costs should improve the company’s EPS outlook.

The stock has traded virtually flat due to being a stable, relatively boring, electric utilities company. However, a yield of almost 5% and bottom line growth does make this a potentially good investment. Therefore, it might very well be a nice addition to your portfolio.

Bernstein didn’t upgrade shares of AIG, rather called it “a once-in-a-generation opportunity.” The firm is predicting a run of value investors on the stock who will soon notice that it’s trading at just 0.5x its book value. The firm explains that post-bailout AIG is much different than the AIG of old, and that it’s now more like a company such as MetLife. Bernstein takes it one step further, saying that with AIG being a “Buy,” so are the TARP warrants.

As an investor, I couldn’t agree more with the analysis, and admit that AIG has never been a stock that I’ve considered purchasing since the recession. It’s a complicated company, but one that investors might want to explore.

Argus maintains its bullish outlook on Halliburton, but also increased their price target from $43 to $48 due to easing raw material costs. Halliburton is currently trading at new 52-week highs after strong earnings where strength led numerous analysts to reassess their outlooks. Argus has remained bullish but now thinks the company is progressing much quicker than they had previously thought.

Halliburton is the best-of-the-best in this space, and if energy is trending higher, then so will this stock. Halliburton’s earnings were incredible, with strong international growth, and if prices do decline then Argus will be correct with its price target.

Downgrades

BB&T took Southern Copper’s rating from Hold to Underweight on Tuesday citing the likelihood of reduced dividend payments, the stock’s recent outperformance, and an absolute valuation. The firm noted that the company is about to embark on a major capex program that will result in negative free-cash flow and potentially additional labor strikes. The bottom line: It doesn’t look bright for Southern Copper and the company has to make cuts somewhere, most likely dividends.

Conclusion

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 has no position in any stocks mentioned. The Motley Fool recommends American International Group and Halliburton. The Motley Fool owns shares of American International Group and Halliburton and has the following options: Long Jan 2014 $25 Calls on American International Group. 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!

blog comments powered by Disqus