Many investors focus on value measurements, such as price-to-earnings or price-to-sales ratios. But to find underpriced top stocks, an even better method is to look at their upside potential based on analyst price targets. Wall Street analysts are responsible for coverage on a select group of stocks based on industry and market size.
These analysts meet with management and other stakeholders to determine a company’s current and future value based on its financials and growth potential. They use this information to generate earnings estimates and target prices that help them form their overall ratings. So, a price target is what analysts think the stock is worth per share.
The average of analysts’ price targets can but used to estimate what price a stock could reach. So, if a stock is trading below its average target price, there is a solid chance it will increase its price.
If a stock is trading more than 50% below its average price target, the company has a very high upside. These three stocks fit that description and have potential for considerable gains:
Top Stocks: MKS Instruments (MKSI)
MKS Instruments provides subsystems, process control systems and instruments used to measure, monitor, deliver and control manufacturing processes. The company’s products and systems are required to make flat panel displays, medical devices and electronic materials.
MKSI stock has solid growth potential in the semiconductor market due to increased demand for advanced memory and logic chips. Plus, strong demand for power solutions has been a growth driver in the chip end market.
The company’s advanced electronics market is benefiting from strong demand for products with manufacturing and industrial applications. The company’s solutions are also being used to fight Covid-19. Its valves and pressure measurement solutions are being used to sterilize personal protective equipment.
The rapid adoption of 5G has created a massive growth opportunity for MKS Instruments, as its implementation will require upgraded wireless infrastructure and new mobile devices. This bodes well for its semiconductor and laser diode testing businesses.
The company has an overall grade of “B,” which translates into a “buy” rating in our POWR Ratings system.
MKSI stock has a Value Grade of “B,” which makes sense with a forward P/E ratio of 12.06. The firm also has a Momentum Grade of “B,” as the stock has shown positive long-term performance. It’s up 30% over the past year.
We also provide Growth, Stability, Sentiment and Quality Grades for MKSI stock, which you can find here. Additionally, the stock has an upside potential of 56% based on its average analyst price target.
MKSI stock is ranked #32 in the B-rated Industrial – Equipment industry. For more top stocks in this industry, click here.
Medifast Inc. (MED)
MED is a U.S.-based company that produces, distributes and sells weight loss, weight management and healthy living products. The company is known for its leading health and wellness brand, Optavia. The firm generates its revenue from point-of-sale transactions executed over an e-commerce platform.
Optavia follows a holistic approach that focuses on aspects like weight, eating, hydration, motion and sleep. The product line is sold through a community of independent coaches who provide their clients with support and guidance.
Medifast is seeing strength in the brand, with its average revenue per active earning Optavia coach increasing 13.9% year-over-year. This is due to an increase in consumer interest in health and wellness.
The increasing interest in health has helped the company draw new clients, leading management to raise its 2021 guidance. Medifast has also undertaken several measures to drive growth, including speeding up its long-term supply-chain efforts.
Plus, the company is growing its distribution network through expansions in existing facilities. It is also investing in its technology with a new tech center in Utah and the Optavia app, which helps enhance the client experience.
MED stock has an overall grade of “B” and a “buy” rating in our POWR Ratings system. The company has a Sentiment Grade of “B,” as it is well-liked by analysts.
MED shares have an upside potential of 77% based on an aggregate of analyst price targets. The company also has a Quality Grade of “A” due to a strong balance sheet. As of the most recent quarter, the firm had $197 million in cash and only $16 million in long-term debt. For the rest of MED stock’s grades, including Growth, Value, Momentum and Stability, click here.
MED is ranked #6 in the B-rated Medical – Consumer Goods industry. For more top stocks in this highly rated industry, click here.
Top Stocks: Amarin (AMRN)
AMRN is a biopharmaceutical company focused on the commercialization and development of therapeutics to improve cardiovascular health. Its lead product is Vascepa, approved in the United States as an adjunct to diet for treating severe hypertriglyceridemia, or elevated triglyceride levels.
Sales of Vascepa have registered solid year-over-year growth over the last four years. In fact, revenue grew 40% last year. While Covid and poor weather impacted sales in the first quarter of this year, they recovered in the second quarter. That recovery is expected to continue for the rest of the year. Its recent label expansion for cardiovascular indication also bodes well.
Amarin has increased its sales, building up its team to 800 members. It has also started promoting the expanded label among physicians, and initiated promotional activities as well as direct-to-consumer programs to raise awareness. Amarin is also engaged in improving payer coverage for the drug.
The company has filed a patent infringement lawsuit against Hikma to prevent it from marketing a generic equivalent. It has filed similar suits against other Vascepa generic providers.
Amarin has an overall grade of “B,” translating into a “buy” rating in our POWR Ratings system.
AMRN stock has a Value Grade of “B,” which isn’t surprising as both its price-to-sales and price-to-book ratios are well below the industry averages. The company also has a Sentiment Grade of “B,” which aligns with an upside potential of 123% based on its average analyst price target. To access all of AMRN stock’s grades (Growth, Momentum, Stability and Quality), click here.
AMRN stock is ranked #31 in the Biotech industry. For more top-ranked stocks in this industry, make sure to visit this link.
On the date of publication, David Cohne did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a Consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.