The summer of 2016 is winding to a close, and the market ignored every one of the serious concerns. The high valuations, low volatility, no “sell in May and go away” and even weak economic data and earnings did not matter.
And the bull market is now about seven and a half years old. Still, the Dow, S&P 500 and Nasdaq all are right under all-time highs. Many investors are perplexed, and they are also are looking for other ideas for how they will still make money ahead.
24/7 Wall St. reviews dozens of analyst research reports each morning. This ends up being hundreds of analyst reports each week. Our goal is to find new investing and trading ideas for our readers.
The quest for upside and value often leads to stocks with low market caps or stocks with low share prices. This frequently ends up being in stocks that are trading under $10. In the week of August 27, there were seven key analyst calls for stocks to buy that were trading under $10 per share.
Speculative and low-priced stocks often come with far greater implied upside than Dow and S&P 500 stocks. Safer stocks to buy come with analyst upside targets in the range of 8% to 15% at this point in the bull market. But the projected upside in speculative companies is often more than 30%, 50% or even over 100%.
Before blindly jumping in here looking for massive upside, investors need to understand that there is much more risk. They need to exercise some caution and realize that not every one of those upside targets will be hit. Sadly, it doesn’t even take all that bad of news or that much of a market correction to ruin the story. Sometimes analysts have assumptions that prove to be entirely wrong. Sometimes outside forces or unexpected events will wreck a company’s upside. And sometimes management just falls short on its ability to deliver.
24/7 Wall St. frequently warns that there is no free lunch when it comes to money matters and investing. That is true for stocks, bonds, commodities and every other asset class. It often does not seem fair when it happens, but you can make projections that come true and then the market simply refuses to value it with the same upside.
The final risks and warning label here is a reminder that sometimes companies implode and disappear. All the projected upside from analysts in the world won’t look that great if the market sells off very much or if these companies run into hurdles.
These are the analyst stock picks with huge upside targets in the under-$10 category from the week of August 27.
1-800-Flowers.com Inc. (NASDAQ: FLWS) was reiterated as Buy at Wunderlich on August 23, but the firm raised its price target from $9 to $12. The initial reaction caused a 2.7% gain to $9.61, and this was just 48 hours or so before the company was scheduled to report earnings. The stock closed out the week at $9.31 per share.
On Deck Capital Inc. (NYSE: ONDK) was maintained as Buy with a $7 fair value estimate at Janney on Wednesday. The prior close was $6.12, and while this may not seem like massive upside, it was after the lender signed a new $100 million credit agreement. Also, it has a consensus analyst price target of $8.45 and a 52-week trading range of $4.20 to $12.85. Shares ended the week at $6.17.
Platform Specialty Products Corp. (NYSE: PAH) was started with a Buy rating and a $12 price target at Roth Capital on August 22. The call was largely overlooked as the prior $8.99 close matched a close of $8.98 after the call, even with over 1.7 million shares trading that same day. The stock also closed Friday at $8.78, and volume is still averaging well over a million shares.
HTG Molecular Diagnostics Inc. (NASDAQ: HTGM) was started with a Buy rating at Rodman & Renshaw on Monday, August 22, and it was assigned a $5 price target. This was up over 100% from the prior close of $2.44. The shares rose 2.5% to $2.50 right after the call on thin volume. Still, it closed Friday at $2.46, and trading volume is paltry in this tiny $18 million market cap.
Kadmon Holdings LLC (NYSE: KDMN) saw a minimum of two positive ratings this week after the quiet period ended. It was started as Buy with a $12 price target at Jefferies and started as Market Outperform with a $16 price target at JMP Securities. Its prior close was $9.97, but the stock closed at $10.01 after the call on Monday. Even though it closed at $10.06 on Friday, it traded under $10 every day after the calls were made.
Atlantic Coast Financial Corp. (NASDAQ: ACFC) is a tiny bank worth right at $100 million, but FBR Capital Markets reiterated its Outperform rating and raised its price target to $8.00 from $7.50 on August 23. The prior close was $6.15, and shares were trading at $6.25 after the call. They closed out the week at $6.48.
Investors Real Estate Trust (NYSE: IRET) was started with a Buy rating at Janney on August 23. The $7 fair value estimate seemed unimpressive against the $6.46 prior closing price, but this has a yield of 8% or so while the company transitions into a pure-play apartment real estate investment trust (REIT). The shares ended the week at $6.43.