Top Analyst Calls Worth Noting 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.
An analyst’s call can be a major catalyst for movement in a stock. In the past I have written in detail about such subjects, as a call can often create a domino effect of revised outlooks and either buying or selling of a stock. In this piece I am looking at four stocks that traded with excessive volatility thanks to the notes issued by analysts; these are all calls worth noting.
Global Power Equipment
An article in Barron’s reports that Global Power Equipment could see a boost in its operations and that the company’s large backlog could provide investors with a total return exceeding 20% within a year. Barron’s believes that the company’s Braden gas turbine was negatively impacted by a less profitable product mix and higher expenses, and that the company could now see profit margins rebound from a weak Q3.
The stock is currently trading higher by 1.5%, after an initial pop of more than 7.5%. If Barron’s is correct then it would be a major turnaround for the company, as this is a company that needs significant margin growth to excite investors. With the stock currently trading higher by just 1.5%, this news might be worth exploring, however with a 7.5% premium, I wouldn’t touch it. Therefore, this is a scenario based on price and performance. I would only buy if the stock remains cheap.
Due to assets that can produce strong returns, double digit production growth, and better cash flow than in recent years, Goldman Sachs has added Southwestern Energy to its conviction buy list. This is a company that a lot of people feel good about. However, the stock trades with a price/sales of 4.29 and a forward P/E ratio of 17.66. It has weak margins and there are some who believe that production will not meet expectations. As a result, I would sit on this one. It rose 2.7% on the report and I believe it may now be too expensive.
The boutique research firm Off Wall Street is expecting a significant decline from F5 Networks over the next year, with its $70 price target and their “Sell” rating. The stock is now trading lower by almost 6% as the firm questions the partnership between FFIV and Websense. The partnership is intended to develop enterprise security architecture however Off Wall Street does not think it will materialize.
While this is possible, yet hard to determine, I suggest assessing the company based on its fundamentals and not whether or not the partnership will be successful. This is a company that continues to produce double digit growth, has operating margins of more than 20%, and operates in a growing space. Therefore, with a forward P/E ratio of 16.50 I find it hard to suggest that it’s such a strong “sell.”
Universal Display Corporation
Shares of semiconductor company Universal Display fell 10% on bearish notes by Piper Jaffray as the firm lowered its price target to $16 on the stock. The reason for the downgrade was checks made by the firm regarding the company’s green emitter product. According to Piper, the company’s green emitter will be used in the Samsung Galaxy S4 device, but that another company’s product will also be used. The firm noted that checks were performed, however with the stock having a price/sales of more than 20.00, it shows investors how quickly a stock this expensive can reverse with bad news and or rumors. As a result, I wouldn’t touch the stock, despite today’s loss.
In my book, Taking Charge With Value Investing (McGraw-Hill), I examine human behavior and the psychological effects that take place in the minds of investors when a stock shoots higher or falls drastically lower (think roulette at a casino). For many investors, chasing these trends is common, even addicting, and very few are capable of realizing their losses because of their occasional gain. Investors need to avoid this behavior, and not look at the performance and then the news, but rather assess the valuation of a stock and then take into consideration the opinions of the analyst. By doing so, you will be able to find the inconsistencies and a distinction between performance and fundamentals, which creates value and allows for large returns.
BrianNichols has no position in any stocks mentioned. The Motley Fool recommends Universal Display . The Motley Fool owns shares of Universal Display . 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!