In general, the analyst community on Wall Street is revered as the all-knowing oracles of stocks. Consider the reactions that we see in stocks whenever an analyst issues an upgrade or downgrade.
For example, Apple Inc. (AAPL) saw Goldman Sachs upgrade its shares on Nov. 18, which resulted in a 3.1% jump in value.
Put simply, the power of the “upgrade” can do a lot for a stock’s value.
However, there are times when Wall Street’s opinion doesn’t keep up with the actual performance of a stock. For example, a stock that is up more than 25% year-to-date might be all but ignored by the analyst community as the majority of them failed to recognize it as a “buy” before the run, then continue to keep their heads in the sand.
This is where investors should be looking for stocks to buy — these “underloved performers.”
For our purpose, we filter through more than 7,000 companies to find stocks that are significantly outperforming the market while being ignored by the analysts covering them. Specifically, we’re looking at stocks that have returned more than 10% in 2015 and still have been recommended by less than half of the analysts covering them (minimum of 20 analysts).
In no particular order, here are 10 underloved stocks to buy that have already helped investors — and will do even more once the analysts finally catch up to these stories.
Unloved Stocks to Buy: Total System Services, Inc. (TSS)
YTD Performance: 60%
Analyst “Buy” Rating %: 33%
Fast and steady has been the name of the game for Total System Services (TSS) — a credit card issuer and merchant processor — this year as the company has rocketed from $32 to $54 in 2015. The 60% gains in TSS stock appear to have left the analysts in the dust, as only seven of the 21 analysts covering the stock have it ranked a “buy.”
A technically strong performance like this will force upgrades, which should help TSS stock move even higher throughout year’s end and even 2016.
Unloved Stocks to Buy: Nvidia Corporation (NVDA)
YTD Performance: 56%
Analyst “Buy” Rating %: 39%
While Nvidia (NVDA) is classified as a semiconductor and semiconductor equipment manufacturer, it is best known for video technology. NVDA has jumped more than 50% this year as demand for its products continues to swell along with profits.
Of the 31 analysts covering the stock, more than half (16) have it ranked as a “hold,” while only 12 think NVDA is “buy”-worthy.
However, the continued performance of NVDA shares will likely draw a number of analysts off of the fence to upgrade the shares. The last upgrade of the stock came on Nov. 16, as Canaccord Genuity raised its price target on NVDA from $30 to $35 — and that could be the first in a string of upgrades as the year comes to an end.
Unloved Stocks to Buy: O’Reilly Automotive Inc (ORLY)
YTD Performance: 40%
Analyst “Buy” Rating %: 48%
Auto parts retailers have been knocking the cover off the ball this year as do-it-yourselfers flood to the stores and boost sales. O’Reilly Automotive (ORLY) shares are trading higher by almost 40%, but you would never know it by the current analyst coverage.
As of this week, 48% of analysts were recommending ORLY shares as a “buy,” 48% a “hold” and 4% were actually recommending that we sell shares.
More cars on the road and driveways translates into higher sales for ORLY, however, which means analysts are likely to shift their story and upgrade O’Reilly’s stock sooner than later.
Unloved Stocks to Buy: Juniper Networks, Inc. (JNPR)
YTD Performance: 35%
Analyst “Buy” Rating %: 35%
Communication networking companies have been on a tear as network infrastructure continues to grow. Juniper Networks (JNPR) investors have yielded gains of 35% for 2015. Juniper might not be for everyone since it trades at nearly twice the volatility of the S&P 500, but the analysts have really missed the ride here.
Only 11 of the 31 analysts covering JNPR have it ranked a “buy,” and 61% call it a “hold.”
That’s fine. The recent dip in prices will give the majority of analysts covering the stock a chance to upgrade at reduced prices, resulting in more rally potential as we head into 2016.
Unloved Stocks to Buy: Owens Corning (OC)
YTD Performance: 33%
Analyst “Buy” Rating %: 43%
Building material companies continue to move north as housing and multi-dwelling construction maintains a steady pace. While many investors are concerned that higher rates will effect demand, the low “slope” of the expected interest rate hike should maintain liquidity in the housing market.
Owens Corning (OC) shares are benefiting from the environment, trading more than 30% higher year-to-date. The analysts have been dragging their feet on upgrades, though, as less than half have Owens Corning on their lists of stocks to buy.
Another 43% have been sitting in the “hold” camp and likely will begin upgrading the stock as it pierces new-high territory.
Unloved Stocks to Buy: AutoZone, Inc. (AZO)
YTD Performance: 26%
Analyst “Buy” Rating %: 38%
A carbon copy of O’Reilly, AutoZone (AZO) shares have gained more than 25% this year, only to be ignored by the analyst community. In January, nine analysts of 27 recommended AZO stock as a “buy.”
Today? Still nine analysts. (But at least it’s out of just 24 now.)
A lot of investors shy away from AZO shares because of their lofty nominal price of nearly $800 per share, but the fundamental and technical analysis of the stock makes it a value at current prices. Keep in mind that even a split announcement would likely shake some of the analysts ranking AZO a “hold” into upgrading the stock.
Unloved Stocks to Buy: Accenture Plc (ACN)
YTD Performance: 20%
Analyst “Buy” Rating %: 33%
Accenture (ACN) delivers information technology services to a host of industries. Like many technology companies, ACN shares are outperforming the S&P 500 by multiples after gaining 23% year-to-date.
Unlike many better-known tech names, Accenture has gone without seeing upgrades from analysts covering the stock this year. To date, 12 of the 26 analysts covering the stock rank it a “buy,” with the remaining 14 sitting on the fence as “holds.”
New highs will likely maintain pressure on these analysts, resulting in upgrades and even higher prices.
Unloved Stocks to Buy: McDonald’s Corporation (MCD)
YTD Performance: 21%
Analyst “Buy” Rating %: 32%
A year ago you would have thought that the Golden Arches had fallen completely. Not the case as McDonald’s (MCD) has gotten aggressive on menu changes and other fundamentals, resulting in a slump-busting turnaround as shares are posting a gain of 22% year-to-date.
The problem, or opportunity, is that a lot of analysts sidelined themselves on the shares, with 65% of the community ranking the stock a “hold.” MCD might be hard to upgrade after rallying more than 20% in a few months, but any pullback in price is likely to open the door to upgrades before the bull train really pulls out of the station.
Unloved Stocks to Buy: Progressive Corp (PGR)
YTD Performance: 16%
Analyst “Buy” Rating %: 32%
Higher interest rates may actually help insurers like Progressive (PGR), as it will boost balance sheet revenue. This, along with strong business growth and technicals, make PGR a great buy.
Only 32% of the analysts tracking Progressive agree with this, and 24% actually rank this stock a “sell,” despite the company’s healthy 22% YTD gains. Look for all kinds of upgrades to boost PGR share performance as the crowd plays catch-up on this name.
Unloved Stocks to Buy: Huntington Bancshares Incorporated (HBAN)
YTD Performance: 11%
Analyst “Buy” Rating %: 37%
Similar to Progressive, Huntington Bancshares (HBAN) shares have benefited from an improving outlook for their industry, which could benefit from slightly higher interest rates.
Analysts don’t seem to be on board. Only 37% believe the stock is a “buy,” despite a 21% gain for the year and the fact that the stock is preparing to break to new multiyear highs. We respectfully disagree with this opinion and expect to see many of these analysts upgrade the regional bank as it moves above $12.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
