3 Market-Moving Analyst Calls 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.

Major calls from analysts created significant movement in several big name stocks in recent days. In this piece I am looking at such stocks to determine if they are a Buy or a Sell.

Amazon (NASDAQ: AMZN)

The big downgrade on Friday came from JPMorgan as the firm downgraded Amazon to a Neutral from an Overweight rating, with a price target of $300. As a result, the stock fell 3.4%, and this reaction was due to the firm’s channel checks, indicating worse than expected gross profit and revenues for 2013-2014. JPMorgan lowered its expectations by 1% (top line) and 3% (bottom line) respectively.

The loss seen in shares of Amazon is quite typical for a stock that has rallied almost 300% over the last five years. For a stock such as Amazon, fundamental performance and growth must be consistent and better-than-expectations at all times in order to maintain a high valuation.

My problem is that Amazon could become more profitable at any time it wants, but has chosen to focus on long-term growth. Yet despite this fact, it is still twice as cheap on a price/sales basis compared to eBay. Furthermore, it is not fair to value an innovating technology based company such as Amazon to that of Wal-Mart. With that being said, I like Amazon if growth is sustained, despite it not being a value stock.

LyondellBasell Industries (NYSE: LYB)

Deutsche Bank upped its price target on LYB to $75 from $70 and reiterated its Buy rating. As a result, the stock rallied 2.32%. The firm was quite impressed with the company’s investor meeting. In the meeting, the company increased its EBITDA target through 2016 due to new capacity and improvements on projects. These improvements are expected to increase EBITDA from $1.0 billion to $1.6-$2.0 billion.

Over the last year, LYB has performed well with a gain of 53%. However, the stock is not expensive by any measure. It currently trades with a price/sales ratio of just 0.80 and a forward P/E ratio of 9.28.

My only concern is that it does need a stronger economy to perform well, as a chemical manufacturing company. However, after a recent investor presentation, a strong yield, and an undervalued price, I think it’s worth the investment.

Canadian Natural Resources (NYSE: CNQ)

Stifel Nicolaus’ upgrade to Buy on shares of Canadian Natural Resources pushed shares higher by 4.59%. The upgrade was a valuation call, as the firm believes that the company’s improvement in heavy oil differentials and its strong Horizon production volumes have not been priced into the stock. Therefore, the firm expects a solid quarter in Q1 and if there is a favorable decision on the Keystone XL it could also create additional movement and create further upside.

While the stock moved higher, the firm made it abundantly clear that most upside is tied into the long-term performance of the stock. The firm specifically said that volume upside would be in 2015 and beyond, meaning that this is a long-term investment.

I agree, the last year has been problematic for the company, and although it is valued attractively, most of its upside potential will not occur until later. With that being said, investors might be better served with companies that are built to succeed now and then come back to CNQ at a later time.

Conclusion

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 has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. 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!

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