Years ago,Wall Street analysts could differentiate stocks they
favored against stocks with little appeal. A "buy" rating was all a
client needed to know.
But during the 1960s and 1970s, clients began to demand more
information. They didn't want to only know what to buy, but how
much of a gain they could expect from the investment. Pretty soon,
an increasing number of analysts began issuing price targets, and
soon enough, the practice became the norm.
Still, not everyone focuses on these targets. I tend to quibble
with their short-term nature, and am less concerned about where a
stock could trade in the next three to six months, but instead the
next two to three years. Other detractors suggest a quantified
target, which is usually a
applied to a particular metric, such as
per share or
. This is too formulaic and doesn't allow for qualitative factors
such as the relative newness and competitiveness of a company's
Having said that, it's still worthwhile to consider price
targets when they are far above current trading levels. Even if the
targets are imprecise, it's clear analysts are calling attention to
what they believe is a sharply undervalued stock.
Here are six stocks with price targets at least 50% higher than
the current price.
1. U.S. Airways (NYSE:
Current price: $10.79
Sterne Agee target: $21
These analysts note that the airline has done a solid job of
streamlining operations, which has helped boost cash. More to the
point, they say an increasingly likely bid for AMR, parent of
American Airlines, will
2. Ford Motor (NYSE:
Current price: $9
various targets: $13-$15
Most analysts are looking past Ford's near-term woes and
continue to see this stock as seriously undervalued. Sterne Agee
seesshares rising to $15, Citigroup expects a trade up to $14,
Morgan Stanley targets $16, UBS is at $14, while Deutsche Bank sees
trading up to $13.
noted in this column
, Ford is doing a solid job in North America and remains decently
profitable, despite the huge headwinds coming from Europe. I think
those above-cited price targets will likely move toward the $20
mark, once the European headwinds truly abate.
3. Parametric Tech. (Nasdaq:
Current price: $20.75
Think Equity target: $31
This company, which enables clients to integrate product-design
collaboration, data management and documentation under a single
software platform, has always delivered erratic year-over-year
results. More troubling, has never quite generated theprofit
margins you'd expect from a software company. Yet a series of
recent acquisitions has broadened Paramteric's platform, which
should fuel steadier growth as the company is able to penetrate its
base of global manufacturers more deeply. And the larger contracts
should yield improving gross margins. Analysts at Think Equity say
Parametric's operating margins, which stood at 10% in fiscal
(September) 2011, could hit 25% by 2015.
Coupled with their expectations of steady 10% annual sales
growth, they say shares could trade up past the $30 mark.
4. Electro-Scientific (Nasdaq:
Current price: $13
D.A. Davidson target price: $22
This company is well known for its production of lasers, which
are used in a wide range of industrial applications, such as
micro-machining, when very small holes need to be drilled into a
sheet of steel, aluminum or plastic. Judging by second-quarter
results and forward guidance, business appears to be growing at a
solid clip -- despite a weak globaleconomy . Analysts at D.A.
Davidson see solid share price upside, as they are "
on ESI's future growth prospects and built in earnings
based on cyclical endmarket recoveries and increased acceptance of
the company's new and diverse product portfolio."
5. Whiting Petroleum (NYSE:
Current price: $40.25
Keycorp target price: $75
Even as these analysts concede that just-released second-quarter
results were mediocre, they
a number of catalysts that could unlock value for this energy
driller. These include a possible joint venture announcement to
exploit its Bakken Shale acreage, solid initial tests from its
wells in the Missouri Breaks region, as well as the increasingly
likely sale of some of its more mature energy assets. Analysts note
that shares trade for a reasonable 4.0 times projected 2013 EBITDA
(compared to the peer average of 5.4), and say shares should trade
up to 6.5 times that projected 2013 figure during the next 12
months. Also, analysts at Jefferies have a similar $70
while Oppenheimer has a $65 price target.
6. Cliffs Natural Resources (NYSE:
Current price: $38
Citigroup target: $80
This mining firm just delivered a subpar second quarter, and its
shares lost nearly 10% of their value. Still, analysts at Citigroup
say shares are too cheap based on likely stabilized results in the
next few years. They note that the
for this stock swings in a wild range -- from two to 15 -- and
suggest shares will eventually move back to around 10 times
projected 2013 profits, which equates to that $80 target price.
Risks to Consider:
These analysts are typically more bullish than their peers on
these stocks, and shares won't move toward these price targets
until the more
analysts pivot toward bullishness.
Action to Take -->
Take these price targets with a grain of salt. Shares prices rarely
actually hit them on the mark. Instead, use them as a directional
guide for potential upside. If shares end up moving close to the
target price, then it can be a time to book profits as the
supportive analysts could soon lower their rating.
-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of F in one or more if its "real money" portfolios.
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