Perhaps no other contributor on InvestorPlace mentions analysts more than David Moadel. Seemingly every other article I read from him, he’s either agreeing with them, debating them or being perplexed at their deductive processes. But love them or hate them, they serve a purpose beyond providing a list of upgraded stocks (or downgraded in other cases). However, do they really matter?
Here are a few ways to look at these Wall Street fixtures. Primarily, they provide a benchmark for investors about to stake their claim in the wild capital markets. Now, I understand that in the blogosphere, many people hate those who make price targets. But the issue is that someone’s got to do it. Thus, analysts provide a reference point for those upgraded stocks to buy.
Second, analysts provide clarity for prospective buyers, which is a valuable service for newbie investors. Frankly, there’s so much going on in the market that it’s impossible to keep up with everything. And that’s just dealing with our own domestic opportunities. Because we live in a globalized economy, analysts who specialize in specific companies or sectors can provide pertinent insights. Don’t worry – there’s meaning in these upgraded stocks.
On the other hand, not everything about analysts is so wonderful. Mainly, the biggest criticism against the industry is that upgraded stocks represent a rehash of old news. Sure, it’s presented in a glossy, professional format — and of course, the information is coming from an expert typically working for a well-known institution. Nevertheless, you’re reading something that everyone else has access to.
As well, analysts can sometimes get in over their heads. For instance, most of these folks are financial numbers guys. So they may not necessarily understand the inner workings or significance of say a biotechnology firm.
Therefore, you should take some of the upgraded stocks with a grain of salt. That said, here are some optimistic listings that I found intriguing.
- Rent-A-Center (NASDAQ:RCII)
- T-Mobile (NASDAQ:TMUS)
- Vista Outdoor (NYSE:VSTO)
- Manpower Group (NYSE:MAN)
- Walmart (NYSE:WMT)
- Welltower (NYSE:WELL)
- Microsoft (NASDAQ:MSFT)
- Extra Space Storage (NYSE:EXR)
- Macy’s (NYSE:M)
All of these upgraded stocks are from analysts who adjusted their guidance in December. Throughout this article, I will be providing the explanation for this assessment and whether I believe it’s truly justified. This way, you can have a better idea of what the experts are looking at and if they’re worth pursuing.
Upgraded Stocks: Rent-A-Center (RCII)
One of the double-edged swords in terms of upgraded stocks is Rent-A-Center, which enjoyed a guidance boost on Dec. 22 by research firm Loop Capital. Analysts there see RCII stock moving to $50, which represents a sizable 31% gain. Will it get there?
On one hand, I completely understand the bullish argument. Back during the Great Recession, ABC News declared that “The rent-to-own industry has a history few retailers would envy but recent sales most would covet.” That’s because the sector allows customers to “lease electronics, appliances and other household items by the week or month. Payments can be applied toward a purchase.”
However, the fundamental red flag for RCII stock doesn’t have to do with the underlying company itself. Rather, “Critics say the industry has taken advantage of vulnerable customers for years by making rental payments so high that a product’s ultimate purchase price is exorbitant.”
In other words, the big picture of this upgrade could be that analysts anticipate economic softness in 2021. If so, that doesn’t bode well for the markets in general.
One of the biggest business deals in recent memory was the merger between T-Mobile and Sprint. Naturally, this caused an uproar with their telecommunications rivals. However, the main argument supporting the merger was that separately, neither company could dream of offering viable competition.
Better yet, TMUS stock has served its shareholders quite well during this novel coronavirus-disrupted year, gaining over 69% since the January opener. As a result, analysts have become more confident in the supercharged organization. Oppenheimer ranked TMUS as “outperform” with a price target of $160. That’s 20% more from the time of writing.
Personally, I’m not sure if I would chase shares in the near term. Since the election, TMUS stock has soared, so there is a possibility of holding the bag at these levels.
That said, the longer-term picture could be positive for T-Mobile, primarily due to the necessity of the underlying connectivity industry. Yes, consumers will budget cut like crazy during a recession. But there are certain products or services that must be purchased in order to stay in the game. Obviously, telecom is one of those core sectors.
Vista Outdoor (VSTO)
There’s no way around it. Out of this list of upgraded stocks, Vista Outdoor is easily the most controversial. Sure, on surface level, VSTO stock appears a saccharine investment given its underlying company name. But this used to be one of the top-quality firearms manufacturers via its Savage Arms and Stevens brands.
In 2019, Vista offloaded those businesses, which in hindsight wasn’t the smartest deal. However, the company did keep its ammunition divisions. This decision more than made up for the pandemic-fueled spike in sales of firearms and related accessories. Seeing the writing on the wall (or is that bullet holes?), Cowen & Co. upgraded VSTO stock to “outperform.”
Earlier in this crisis, firearms represented no-brainer investments due to rising social tensions. Initially, though, the spike came from stigmatized groups fearful of a backlash. Now, I believe all communities have largely an equal magnitude reason to purchase guns. Simply, it’s hard to trust anybody nowadays.
Further, ammunition offers a multi-variate revenue stream in that first-time gun owners will logically want to purchase ammo. But those who may own 50 guns will still want to load up on lead. Despite the controversy, VSTO could also be the smartest among the upgraded stocks.
Manpower Group (MAN)
Back before the pandemic and when President Donald Trump was economically making America great again, workforce solutions firm Manpower Group was probably having trouble recruiting promising, viable candidates. That’s because the phenomenon of “ghosting,” where prospective employees stand up potential employers, became alarmingly common.
Now, the tables have turned. Employers are once again in control — probably firm control if I’m being honest. Analysts at Northcoast Research recognized this, thus inspiring them to rank MAN stock as a “buy.” But with shares down 7% year-to-date, is this a smart idea to follow?
This is another example in this list of upgraded stocks where I can see both sides. Admittedly, if the economy tanks, the labor market will as well. And that doesn’t leave much volume for Manpower Group, which must also compete with other workforce solutions.
However, the flipside to MAN stock is that most Americans probably don’t have what it takes to branch out on their own. This is a reflection of the Dunning-Kruger effect, where people believe they’re more valuable than they really are; for example, folks who steal others’ work and take all the credit.
Eventually, karma catches up. And since these bad actors can’t make it on meritocracy alone, they must suck on the teat of corporate America. This indirectly benefits Manpower Group.
Usually, big-box retailers have a reputation for being boring, especially in the age of Amazon (NASDAQ:AMZN). However, the biggest advantage for companies like Walmart is that consumers sometimes need their products right away. Yes, e-commerce firms have stepped up their shipping options, but these options come at a cost.
Certainly, AMZN can brag about its 75% YTD performance. However, WMT stock isn’t too shabby with a 21% gain over the same period. Further, Walmart has been one of the rocks of stability in the consumers’ mind when the pandemic struck. Logically, RBC Capital saw an opportunity here and raised its price target to $170. That’s about a 19% lift from where I stand.
With so many unknowns both in terms of the coronavirus and its impact to economic stability, Walmart is probably the safest name out of recently upgraded stocks. Even if we have a repeat of the Great Recession (or worse), people have to eat and take care of other essential needs. Therefore, WMT stock is a decent idea to follow.
One of the most deeply impacted upgraded stocks because of the coronavirus pandemic, senior care specialist Welltower, ordinarily would be a smart investment. As you know, baby boomers are retiring in droves. Frankly, it’s not feasible for younger generations to take care of them all when they’re starting their families. That’s where WELL stock comes in. Demographically, it’s enjoying an unprecedented bullish wave.
However, the Covid-19 crisis put an end to that, at least temporarily. Moreover, the senior care industry took an ugly PR hit, particularly in New York. That’s where Republicans accused New York Governor Andrew Cuomo (a Democrat, if you didn’t know) of condemning nursing home residents to death when he ordered Covid-19 patients to senior care centers.
I don’t want to dive into the nasty politics of it all. But Cuomo defended the decision, stating that it was senior care workers that spread the SARS-CoV-2 virus. Whatever the case, analysts at JPMorgan Chase have rated WELL stock as “overweight,” giving a price target of $71.
The upside of 11% isn’t all that impressive. However, it’s the sentiment that matters. With the overweight rating, enthusiasm toward WELL implies a return to normal, or at least a return to normal for the senior care sector. Definitely, this is an interesting one to watch as the demographics remain positive for Welltower.
If I had to provide a list of companies that I’d stick with long term for the next five years, Microsoft would be on it. How could it not? This is a different animal from the one that disappointed in the 2000s decade. Now, the time to get rich off MSFT stock has probably faded. Still, that doesn’t mean you should ignore it moving forward.
As remote work may become at least a semi-permanent fixture in the white-collar labor market, Microsoft’s various business applications will become indelible. For corporate America, its connectivity platforms will be essential for smooth operations. For the gig economy, the company’s Software as a Solution offerings are lifesavers. Speaking for myself, I couldn’t do anything without Microsoft. And I’m sure many other gig workers would agree.
Therefore, with the associated relevance to the new normal, Microsoft is a no-brainer in terms of upgraded stocks. Sure enough, Citigroup analysts believe in MSFT stock, upgrading it to “buy” with a $272 price target. That’s a solid 24% gain from where I stand.
Extra Space Storage (EXR)
As I mentioned near the top, some critics blast analysts’ upgraded stocks as a regurgitation of known materials. To loosely paraphrase The Wolf of Wall Street, if you’re reading about an opportunity on the Wall Street Journal, it’s already too late. Well, that might be the case for many, perhaps most companies but I’ll disagree when it comes to Extra Space Storage.
Indeed, EXR stock is a thinking person’s investment idea. You see, with the demographic trends that I mentioned regarding Welltower — that baby boomers are retiring en masse — retirees are downsizing now that the kids are gone and responsibilities (i.e. income) have lessened. But they still have a lot of stuff that they want to keep or hand down eventually. That’s where storage facilities arrive front and center.
Speaking of the Wall Street Journal, it reported in late September 2019 that investors are moving into storage units. The downsizing dynamic will be much more important during a recession, and that suggests higher demand for storage space. Therefore, I like EXR stock and so does JPMorgan, giving it an “overweight” guidance.
If you’re looking for the most controversial name among upgraded stocks in December, I give my vote to Macy’s. Of course, it’s not scandalous from an “ESG” angle — that belongs to Vista, hands down. No, what I’m talking about is the raging debate between bulls and bears. Are we going to get a correction or are we headed off a cliff?
Well, if you follow Jefferies’ guidance, we should cast our worries aside and embrace the unloved bull market. Although down more than 30% YTD, analysts there rank M stock as a “buy,” forecasting a price target of $14. That’s over a 19% profit from the time of writing.
To be fair, the wildness of Macy’s shares combined with the law of small numbers could see this through.
Would I be a willing gambler on M stock? In a word, no. In recent years, Macy’s has had trouble moving its inventory. I’m not sure that a pandemic would make this situation any better. That’s probably one of the saccharine headwinds I can give.
The broader concern of course is the economy. As the WSJ report on storage units above noted, investors had lingering fears of a recession before — yes, before — the pandemic. A catastrophic global crisis would not help this situation. Otherwise, we would deliberately tank our economy to improve our economy.
It doesn’t make any sense. And that’s how I feel about Macy’s upgrade.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.