3 Monday Morning Upgrades I’m Buying Now
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There were countless market-moving upgrades on Monday morning -- but here are three in particular that I believe are most attractive and that I personally am buying.
A Bullish Day for Biotech
The entire biotech space is moving higher in response to the bid for Onyx Pharmaceuticals, especially those with Orphan blockbusters. Regeneron Pharmaceuticals (NASDAQ: REGN) is one of those stocks, but also got an upgrade to produce an extra boost.
Piper upgraded the stock from “Neutral” to “Overweight” with a $274 price target. Shared traded higher, erasing some of the 20% loss that it has posted over the last six weeks. If Piper’s target is correct, Regeneron would trade with a market cap near $27 billion (currently $22.75 billion) and would trade at 10.8 times next year’s sales and 45 times next year’s earnings.
While these metrics may appear expensive, keep in mind that it has an approved drug, EYLEA, with peak sales potential of $4 billion; they also have two other approved drugs and a pipeline with 12 products, including the Phase 3 cholesterol drug Alirocuma. This one product is estimated to have peak sales potential of $3.5 billion in the U.S. alone. Therefore, when you consider its pipeline, current product offerings, and its potential, you can see that the upside is quite high for this company.
“Sentiment is bad. Make that horrible”
The above quote was issued by Raymond James with its upgrade of Apple (NASDAQ: AAPL) to “Strong Buy” from “Buy.” Raymond James believes that the integration of its ecosystem into cars, TVs, and appliances could present a new high-growth market for the company.
Aside from the reasons noted, Apple is cheap. It is still producing growth and is trading at just seven times next year’s earnings (minus cash) and at 2.2 times sales. In a previous article, I showed how Apple is actually worth $700 but is going through a transition where it shifts from growth to maintenance.
In the past, this has always worked well for other companies such as Netflix or Green Mountain Coffee Roasters, but does seem to produce short-term weakness. Thus, I agree with Raymond James that shifting sentiment and new product offerings will drive the stock higher.
Another Retail Turnaround
Credit Suisse initiated coverage on Best Buy (NYSE: BBY) with a bullish $40 price target and an “Outperform” rating. Credit Suisse believes that new leadership was a good idea for the retailer and likes what it sees from the company in its turnaround process.
Credit Suisse also cited a number of recent retail turnarounds including Home Depot, Ulta Salon, and Pier 1, suggesting that new leadership combined with cheap stock equals a change in sentiment. Best Buy created new 52-week highs on the news, rallying almost 7% and making its 2013 gains 145%.
Despite these massive gains, Best Buy is still trading at just 0.19 times sales and 12.4 times next year’s earnings; both of which are significantly lower than the retail space. Moreover, an investment in Best Buy returns a 2.5% dividend yield. These factors combined -- and the fact that I agree with Credit Suisse -- are why I am buying Best Buy.
With these three stocks combined we have a hyper-growth biopharmaceutical company, a massive tech company undergoing a transition, and a cheap retailer that has undergone a shift from growth to maintenance.
Thus, with three different investments in three different industries that are all at different stages of their business, these stocks might make nice additions to your portfolio. Personally, I already own each and I am buying more following these upgrades.
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Brian Nichols owns shares of Apple, Regeneron Pharmaceuticals, Best Buy. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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!