3 Stocks Just Begging for Analyst Upgrades

by Johnson Research Group | July 17, 2013 8:28 am

analyze market[1]Three things can make a stock jump like a frog on hot plate: surprise earnings beats, acquisition announcements and analyst upgrades.

It’s almost impossible to find companies that fall into the first two categories (unless you’re trading on insider information), but investors willing to sift through volumes of data can find stocks that are more likely than others to see an upgrade.

The analyst community is funny in that they hate to be behind the rest of the crowd when it comes to performance … yet often are, and in turn have to play a game of ratings catch-up. As a result, if you can find the companies that are outperforming the market that are heavily ranked as “sells” by the analyst community, you’ve got a short list of stocks that are more likely to see upgrades — which in turn can provide boosts to the covered stocks.

To do this, we track the analyst buy/hold/sell ranking on more than 7,000 stocks every week, allowing us to form lists of the most adored and hated stocks on Wall Street. Over time, this has proved itself to be an incredibly valuable contrarian indicator — especially when you find stocks that the analyst crowd have totally missed out on, like the following three:


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“Buy”: 4%
“Hold”: 76%
“Sell”: 20%

The monthly employment data is showing that the jobs market appears to be on the mend. One stock that benefits directly from more people going to work is payroll processor Paychex (PAYX[2]). The stock has a great fundamental story, as revenue and earnings continue to drive the price higher.

To date, PAYX is up more than 23% … but you wouldn’t know it from the analyst recommendations, which only show 4% buy recommendations on the stock. Expect to see the crowd start upgrading this one soon, driving prices even higher.

American Express

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“Buy”: 39%
“Hold”: 50%
“Sell”: 11%

Analysts have left American Express (AXP[3]) on the roadside as only 39% of those with an opinion have it rated a “buy.” To give some perspective, the average of the S&P 500 companies is over 53% right now.

AXP has been adapting its approach to the market to include a larger group of consumers, rolling out new cards to Walmart (WMT[4]) shoppers and other consumers that don’t fit the usual AMEX profile. The widening of its consumer reach should help earnings, which have been beating analyst expectations.

We believe the 36% year-to-date returns should get the analysts adapting their outlooks and raising their recommendations. Target a move to $100 before year-end.

Seagate Technology

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“Buy”: 20%
“Hold”: 64%
“Sell”: 16%

Seagate Technology (STX[5]) manufactures storage devices for everything from gaming systems to corporate servers. Like many other old-school tech companies, STX shares have been on a tear as improving consumer sentiment figures and expectations for capex spending equate to a likely increase in demand for technology products. STX has bested earnings expectations two of the last four quarters, helping the stock to return more than 50% so far this year.

With only 20% “buy” recommendations on the stock, the shares are ripe for some upgrades. Based on this outlook, a target price of $60 before year’s end appears reasonable as the analyst crowd is likely to turn more heavily toward the bull side.

As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.

  1. [Image]: https://investorplace.com/wp-content/uploads/2011/05/analyze-market-e1305829786147.jpg
  2. PAYX: http://studio-5.financialcontent.com/investplace/quote?Symbol=PAYX
  3. AXP: http://studio-5.financialcontent.com/investplace/quote?Symbol=AXP
  4. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  5. STX: http://studio-5.financialcontent.com/investplace/quote?Symbol=STX

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