In this article, we will take a look at the 10 stocks recently upgraded by analysts.
US stock markets are wavering as politicians continue their talks about the debt ceiling problem. The beginning of the week on May 22 saw a cautious tone in equity markets as President Joe Biden and Republican House Speaker Kevin McCarthy scheduled a meeting to address obstacles in the debt-ceiling negotiations. The discussions have been characterized by fluctuations between progress and deadlock, with time running out to reach an agreement. Stocks relinquished their gains on May 19 when Republicans temporarily withdrew from the talks. The urgency of the situation was emphasized on Sunday by Treasury Secretary Janet Yellen, who expressed a low probability of the US being able to meet all its financial obligations by mid-June, reported Bloomberg.
According to Bloomberg, oil prices stabilized in London on May 22 as financial markets remained uncertain while US lawmakers engaged in final negotiations to reach a resolution on the debt ceiling. Brent crude traded close to $75 per barrel, experiencing a decline of nearly 2% over the previous two sessions.
Meanwhile, on the stock market front, financial services provider The Charles Schwab Corporation (NYSE:SCHW), luxury fashion holding company Tapestry, Inc. (NYSE:TPR), and technology company Meta Platforms, Inc. (NASDAQ:META) recently came into the spotlight after receiving upgrades from analysts.
Raymond James turned bullish on The Charles Schwab Corporation, citing the tapering of client cash outflows at Schwab, which is expected to stabilize the company’s balance sheet and net interest margin. On the other hand, Bernstein upgraded Tapestry, Inc. after the company regained control over its inventory and strong demand for Coach products in China. Check out the complete article to see some other stocks recently upgraded by analysts.
10. PlayAGS, Inc. (NYSE:AGS)
Number of Hedge Fund Holders: 23
PlayAGS, Inc. (NYSE:AGS) designs and supplies gaming products and services for the gaming industry in the United States and internationally. On May 15, Jefferies analyst David Katz raised his rating on PlayAGS, Inc. from Hold to Buy and increased the price target from $7 to $10, citing the company’s Q1 report. According to the analyst’s research note, PlayAGS, Inc. has been experiencing a growing momentum in its products over the past few quarters, and this trend is expected to continue. The firm views PlayAGS, Inc. and its competitors as undervalued, presenting an opportunity for investors in a small-cap stock. Furthermore, the firm states that PlayAGS, Inc. operations have improved compared to the past three years, overcoming the challenges faced in 2019 and during the COVID-19 pandemic.
09. Teva Pharmaceutical Industries Limited (NYSE:TEVA)
Number of Hedge Fund Holders: 29
Teva Pharmaceutical Industries Limited (NYSE:TEVA) is a global pharmaceutical company that produces and distributes generic and specialty medicines and biopharmaceutical products in North America, Europe, Israel, and other parts of the world.
On May 18, Umer Raffat, an analyst at Evercore ISI, upgraded Teva Pharmaceutical Industries Limited from In Line to Outperform without providing a specific price target. According to the analyst, Teva Pharmaceutical Industries Limited has made significant progress in recent years, with a 50% reduction in net debt and resolving its opioid lawsuits. Furthermore, the company’s core business has generally stabilized. Raffat points out that an intriguing opportunity has emerged for Teva Pharmaceutical Industries Limited, as two branded programs are approaching important clinical milestones. Specifically, TL1A for ulcerative colitis and Crohn’s disease are expected to see key results next year. At the same time, long-acting olanzapine is anticipated to have a Phase 3 readout in the same timeframe. The analyst suggests that if either TL1A or long-acting olanzapine proves successful, the resulting upside would disproportionately benefit equity holders.
08. Sabre Corporation (NASDAQ:SABR)
Number of Hedge Fund Holders: 30
Sabre Corporation (NASDAQ:SABR) is a travel services firm headquartered in Westlake, Texas. The firm operates a digital marketplace that enables cruise companies to list their tours and products and the general public to select the products they like. It has 16 different cruise lines on its platform.
According to a research note issued on May 15, Bernstein upgraded Sabre Corporation rating from Underperform to Market Perform and set a price target of $3.50. The analyst acknowledges that the company still faces structural challenges but believes that a downside catalyst, in the form of a guidance cut, is now in the past. When initially covering Sabre Corporation earlier this year, Bernstein expressed concerns about the company’s 2025 targets, considering them overly ambitious. However, according to Bernstein, the company subsequently implemented a cost-saving program of $200 million, which partially offset the impact of the guidance cut.
07. Nevro Corp. (NYSE:NVRO)
Number of Hedge Fund Holders: 30
Oppenheimer upgraded Nevro Corp. (NYSE:NVRO) rating from Perform to Outperform on May 15, setting a price target of $40. The firm highlights that the stock trades at a discount of 2 times its sales compared to the overall industry. Oppenheimer believes that if the new CEO can implement positive changes in the sales and marketing strategies, it could help stabilize the Nevro Corp. market share and potentially exceed expectations, which would be favorable. Additionally, the firm suggests that any complementary acquisitions or introducing new products could present interesting growth opportunities akin to call options.
06. AvalonBay Communities, Inc. (NYSE:AVB)
Number of Hedge Fund Holders: 30
AvalonBay Communities, Inc. (NYSE:AVB) is a real estate investment trust that owns and operates apartments in cities such as New York and Seattle. On May 15, AvalonBay Communities, Inc. was upgraded by BofA from Neutral to Buy, with a revised price target of $212, up from its previous target of $199. BofA is adjusting its ratings for residential real estate investment trusts (REITs). Demographic trends indicate that the market has reached or surpassed the peak demand for urban apartments. Considering AvalonBay Communities, Inc. portfolio, which is more focused on suburban properties, the firm believes that the REIT’s strategic approach to its portfolio and development aligns well with the ongoing shift in demand, positioning it favorably to capitalize on this rotation.
Here is what Baron Real Estate Fund has to say about AvalonBay Communities, Inc. in its Q2 2022 investor letter:
“We recently re-initiated a position in AvalonBay Communities, Inc. The company is a REIT that owns and operates a $43 billion portfolio of high quality apartment assets, located primarily in the east and west coasts of the U.S. We believe its concentration in high-barrier-to-entry coastal markets and its mix of urban and suburban properties should lead to strong cash flow growth over time. AvalonBay’s investment grade rating provides it with a cost of debt advantage compared to private developers. Management has proven to be a capable acquirer and developer of apartment assets. We believe AvalonBay’s shares are trading at an attractive 25% discount to its private market value.”
05. Tapestry, Inc. (NYSE:TPR)
Number of Hedge Fund Holders: 38
Aneesha Sherman, an analyst at Bernstein, on May 15, upgraded Tapestry, Inc. from Market Perform to Outperform and raised the price target from $50 to $55. Previously, the firm had downgraded Tapestry, Inc. to a Neutral rating in January 2023 due to anticipated short-term weakness in North America. However, two quarters later, this weakness has materialized as expected and is already factored into the company’s guidance and consensus. Additionally, Bernstein notes that Tapestry, Inc. has regained control over its inventory, and there is a strong demand for Coach products in China. The firm maintains a positive outlook on Tapestry, Inc. long-term investment potential and finds the stock’s current valuation attractive.
04. Albemarle Corporation (NYSE:ALB)
Number of Hedge Fund Holders: 46
Albemarle Corporation (NYSE:ALB) specializes in developing, producing, and distributing specialized chemicals for various industries. The company is divided into three main segments – Lithium, Bromine, and Catalysts.
On May 18, UBS upgraded Albemarle Corporation from Neutral to Buy and raised the price target from $196 to $225. According to the analyst, the recent 2023 guidance reset by the company presents a favorable opportunity to enter into what is considered the “best growth opportunity” in the chemicals industry. The firm specifically highlights the current shift in China’s lithium pricing and the 2023 earnings reset as factors expected to generate increasingly positive sentiment surrounding the stock.
03. DuPont de Nemours, Inc. (NYSE:DD)
Number of Hedge Fund Holders: 48
DuPont de Nemours, Inc. (NYSE:DD) is a global leader in the specialty materials industry. The company has a plethora of offerings for the energy industry, ranging from the exploration and production of oil and gas to solar PV technologies, wind technologies, and fuel cell technologies. On May 15, DuPont de Nemours, Inc. was upgraded by Deutsche Bank analyst David Begleiter from Hold to Buy, along with an increased price target of $80, up from $70. This target implies a potential upside of 25%. Begleiter notes that since the shares were downgraded in mid-January, they have declined by 15% compared to a 3% gain in the S&P 500 Index. As a result, DuPont de Nemours, Inc. stock is now trading at a 50% discount compared to its peers. The analyst believes this presents an opportunity for investors and advises a Buy rating on the stock.
Third Point made the following comment about DuPont de Nemours, Inc. in its Q4 2022 investor letter:
“We recently increased our investment in DuPont de Nemours, Inc. (NYSE:DD), a specialty chemical company run by legendary value creator Ed Breen, who is leading a corporate transformation. In November, DuPont divested its most cyclical and lowest margin business segment, Mobility & Materials, to Celanese for $11 billion, or 14x 2023e EV/EBITDA. Following the divestiture, the improved DuPont trades at 11x 2023e EV/EBITDA, which represents a ~30% discount to its peer group.
We believe the company is laser-focused on closing this gap. First, $5 billion of the proceeds are being deployed to repurchase nearly 15% of its outstanding shares. The next significant catalyst for the stock is a potential settlement of PFAS-related multidistrict litigation in South Carolina, which remains an overhang on the stock even though DuPont’s PFAS liability was largely ring-fenced by the 2021 settlement with Chemours and Corteva. DuPont’s strong management team is eager to demonstrate the business quality of the new portfolio during the current period of economic volatility. We expect the combined catalysts of increased share repurchases, the pending resolution of legal claims, and the new business structure to drive meaningful value for shareholders.”
02. The Charles Schwab Corporation (NYSE:SCHW)
Number of Hedge Fund Holders: 74
On May 15, Raymond James analyst Patrick O’Shaughnessy upgraded The Charles Schwab Corporation from Market Perform to Outperform and set a price target of $63. The analyst points out that recent data suggest a tapering of client cash outflows at The Charles Schwab Corporation, which is expected to stabilize the company’s balance sheet and net interest margin. The firm believes that The Charles Schwab Corporation deposit balances will begin to stabilize in the third quarter. While a stricter regulatory environment may continue to impact the company’s shares for some time, the firm believes that any incremental risk to Schwab’s earnings power will likely be limited. Additionally, the firm highlights that The Charles Schwab Corporation has minimal credit risk and possesses an attractive core growth story that remains unaffected by recent macroeconomic events.
RiverPark Large Growth Fund made the following comment about The Charles Schwab Corporation in its Q1 2023 investor letter:
“The Charles Schwab Corporation: SCHW shares were our top detractor for the quarter as bank stocks sold off aggressively following the failures of Silicon Valley Bank and Signature Bank. Despite the bulk of Schwab’s $7 trillion of assets being in the brokerage business, the company does have a large deposit base on which it earns net interest income. While Schwab has seen asset growth increase as depositors look for safety, the company has seen persistent cash sorting (depositors moving cash from deposits to money market funds to generate higher yields). This sorting has two negative consequences: first, it reduces the firm’s profitability because Schwab earns more in net interest income on assets on deposit than it does on management fees from money market funds, and second, it forces Schwab to sell assets held by its bank subsidiary to fund the cash transfers into money market funds. Because of the recent rapid rise in interest rates, these asset sales could cause Schwab to realize trading losses. We think this latter scenario is unlikely for two reasons: first, following historical patterns from past cycles, we believe the cash sorting trend will slow in the coming months, and second, Schwab has enough available liquidity from other sources to fund nearly 100% of its deposit base without selling marked-down securities.
Schwab and TD Ameritrade (which Schwab acquired in October 2020) have been the leading share gainers in the discount brokerage industry over the last decade, with both generating substantial organic asset growth while also growing operating margins and remaining amongst the price leaders on all products. With these two businesses now combined, revenue and expense synergies should accelerate in 2023, and we believe the company will be in an even stronger position to gather assets and drive long-term margins and free cash flow in the years to come.”
01. Meta Platforms, Inc. (NASDAQ:META)
Number of Hedge Fund Holders: 194
Meta Platforms, Inc. is the biggest social media company in the world. Its Facebook and Instagram services are among the largest in the world. Additionally, Facebook also owns the messaging service WhatsApp. The firm was set up in 2004 and is based in Menlo Park, California.
Loop Capital on May 15 upgraded Meta Platforms, Inc. from Hold to Buy and raised the price target from $220 to $320. The analysts at Loop Capital initially viewed the company’s expense rationalization as a one-time driver but have grown increasingly optimistic about Meta Platforms, Inc. revenue outlook. They note that three significant headwinds to revenue – Apple’s ad tracking changes, foreign exchange fluctuations, and the transition to Reels – are all in the process of cycling through and are expected to become tailwinds for the company. According to the firm, these factors have been responsible for a headwind of around mid-teens percent to revenue growth. In addition to normalizing comparisons, Meta Platforms, Inc. is anticipated to benefit from product-driven enhancements through Advantage+ and monetization momentum on Reels. Loop Capital believes that earnings estimates for Meta should be favorable, barring a severe global recession.
Baron Opportunity Fund made the following comment about Meta Platforms, Inc. in its Q1 2023 investor letter:
“We continued rebuilding our position of Meta Platforms, Inc., the world’s largest social network, this quarter. We believe Meta is competitively well positioned to utilize its leadership in mobile advertising and expand further with the generative AI shift, especially given its massive user base, substantial technological scale, and innovative culture. Core engagement has been strong at Meta, especially with the success of Instagram Reels, which is regaining share from TikTok. Across its platforms, Meta has 3.7 billion monthly active users. A U.S. TikTok ban would further materially benefit Meta. In terms of improving monetization, Meta has developed more effective ad targeting in the last few months with its Advantage+ product. Longer term, Meta has invested in generative AI for years and has among the world’s best and largest datasets and distribution. We believe generative AI can materially help Meta improve existing products (e.g., instantly generate personalized creative ads) and expand into new areas (e.g., through WhatsApp and Messenger chats). On the profitability front, Meta’s management is serious about cost discipline (laying off approximately 21,000 workers) and prioritizing a more efficient environment, led in earnest by CEO Mark Zuckerberg. Valuation remains relatively attractive, especially as we expect double-digit earnings per share growth, and additional growth options remain.”
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This article is originally published at Insider Monkey.
