Noteworthy Upgrades on Friday: 2 to Buy & 2 to Sell
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Celldex Therapeutics (NASDAQ: CLDX)
On Friday, a slew of upgrades came rolling in on shares of Celldex Therapeutics after the biotechnology stock lost significant value following earnings, which were on Thursday. That same day (Thursday) I wrote an article telling investors to “buy,” and I guess I wasn’t alone, as Roth Capital, Cantor Fitzgerald, and Jefferies all issued positive notes and bullish price targets on the same day.
The price target from these three analysts ranges from $15-$16, and was enough to spark a rally of 17.45%. Much of this reaction was following Cantor’s note, explaining its expectations for revenue in 2016, a year earlier than Wall Street expects, and notes that remind investors of the company’s two Phase 3 and three Phase 1/2 candidates.
The stock is now trading with a market cap of $763 million after its rally, touching new highs. And although I have been saying “buy” this stock for over a year, most recently on Thursday, it is now reaching a level that is quite expensive. Therefore, I wouldn’t follow analysts into this upgrade. If you own stock then I would hold but would not initiate any new positions at these levels.
Tenet Healthcare Corp (NYSE: THC)
After a 3.45% gain on Friday following an upgrade to “Buy” from CRT Capital, many believe Tenet Healthcare is a long-term buy. The issuing firm makes a compelling case for an investment, including a recent strong quarter, improved free cash-flow, and anticipated benefits from the health-care overhaul. The firm believes that the positive impact from these facts is yet to be felt on the stock, and that the Street is underestimating the power of reform measures.
This is a stock that has seen a 50% rally over the last three months, yet CRT is right, this is still a cheap stock with a lot of positive catalysts on the horizon. It trades with a price/sales ratio of just 0.48 and a future price/earnings of 12.50. Therefore, I agree and say “buy.”
Chicago Bridge & Iron Company (NYSE: CBI)
Mad Money TV host Jim Cramer carries a lot of weight on Wall Street, and often times a mere mention on his show can push a stock higher. With that being said, he is often wrong just as much as he’s right, but did make a compelling case for CBI on Thursday, which pushed shares higher by more than 2% on Friday.
Cramer explained that CBI might be the top pick for investors looking to benefit from the North American energy infrastructure expansion. He says that shares are “ridiculously cheap” at just 14 times earnings despite long-term growth of 23%. In my opinion, he’s right, this is a cheap play on construction that has not yet appreciated with the rest of the industry. I’d watch it closely.
Helca Mining Co. (NYSE: HL)
Global Hunter upgraded Helca Mining Co. on Friday to “Buy” with a $6.25 price target. As a result, the stock rallied 4.17%. The firm did say that HL is an attractively priced diversified precious metals stock, however the bulk of its upgrade centered around its bid to acquire Aurizon Mines. Currently, Helca is battling with Alamos Gold to acquire Aurizon, and the firm believes that Helca’s bid is superior.
This is a very volatile stock (118% more than the market) and is currently trading at the bottom of its range. Therefore, it could make an interesting buy, yet I think upgrading a stock or making an investment decision based on the speculation of an acquisition is one of the quickest ways to lose a lot of money. Because after all, this stock is not cheap -- it trades with a price/sales of 3.62 and lost more than 20% of its revenue during the last quarter. Therefore, I’d wait to buy, and would invest in something that is safer.
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), with one scenario being after an analyst’s call. For many investors, chasing these trends is common, even addicting, and very few are capable of realizing their own losses because of their occasional gain.
Investors need to avoid this behavior after a call, and look not at the performance of the stock but rather the performance of fundamentals. 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.
Brian Nichols is long CLDX. The Motley Fool has no position in any of the stocks mentioned. 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!