Three Market Moving Calls Worth Noting: Bonanza Creek Energy Inc. (BCEI), Hewlett-Packard Company (HPQ)

In a down market, some stocks pushed higher as analysts provided reasons to buy. These calls are not enough to make an investment, but should be considered as part of your research. Therefore, I am assessing Monday’s top upgrades.

Hewlett-Packard Company (HPQ)

Call “might” be a little too late on this great stock

Bonanza Creek Energy Inc. (NYSE:BCEI) is a company that you might not have ever heard of, but is one that is growing rapid and is performing exceptionally well. In the last year it has returned gains of 115% and is one of the very few companies to see several years of triple digit growth. And on Monday the stock rose another 4% as three firms raised their price target on the stock. Most notably, Societe Generale raised its target from $26 to $43 after the company’s strong earnings report. The firm noted an overall reserve growth of 21% in 2012, declining operating costs, and encouraging flow rates from the Wattenberg field as catalysts for the stock.

Bonanza Creek Energy Inc. (NYSE:BCEI) is a great company and a terrific stock that I wish I would have noticed earlier. However, my concern is whether or not these analysts have missed the boat. At this point, there are reasons to be both optimistic and pessimistic: It trades with a forward P/E ratio of just 19.20, but does have a price/sales ratio of almost 7.0. The company continues to see margin growth, has great cash flow, and its growth is remarkable in this economy. Therefore, I’d buy, and if a slight pullback occurs, then who cares? This is a long-term investment in a great company!

Great call but growth is still missing

Shares of Hewlett-Packard Company (NYSE:HPQ) have very quietly rallied more than 55% over the last three months, and on Monday the stock gained an additional 2.50% after an upgrade from Morgan Stanley. The analyst, Katy Huberty, upgraded shares to “Overweight” and praises the company for its consideration of cash-flow implications. The analyst believes that lower capex and an improved cash conversion cycle could lead to more free cash flow for the company.

Despite Hewlett-Packard’s massive gains it is still very cheap. The company is valued at $43 billion and has operating cash flow of almost $12 billion for the last 12 months. This ratio indicates that the stock is incredibly cheap. It trades with a price/sales of 0.36 and trades at just 6.39 times next year’s sales. However, the reason for this valuation is due to the company seeing no top-line growth.

Hewlett-Packard Company (NYSE:HPQ)’s operations are improving but the company doesn’t really have a product that captures the consumer. With that being said, I think the stock is fairly valued and that it could be a good investment. Personally, I want to see growth in my investments, but for a near zero growth company, and a forward yield of 2.40%, it’s hard to argue that the stock isn’t cheap.

Valuation call moves stock that lacks value

The controversial company Intuitive Surgical Inc. (NASDAQ:ISRG) saw a 4.50% pop on Monday as Canaccord called the stock cheap and upgraded it to “Buy.” Over the last month the stock has fallen by 15.5% due to questions regarding its robotic devices. However, the firm now believes that expectations have been lowered enough to where fundamental growth exceeds the valuation, using the PEG ratio as the determining factor to validate its “buy” rating.

Most good value investors know that when a stock trends higher, it almost always continues until being overvalued, and when it trends lower, it will reach a point of extreme value. Therefore, with the rumors surrounding this company, and with the stock trading at 30 times earnings, I don’t think that level has been reached. I don’t know what will come of the questions surrounding the company’s machines, but if perception is on the downtrend, then I suspect its stock will continue to fall as well. Bottom line: I think there is too much risk at this time.


In my book, “Taking Charge With Value Investing (McGraw-Hill, 2013)” I thoroughly discuss how to assess the opinions of analysts, and how to use them to your advantage. Typically, there are two types of calls, those that “follow the trend” and those who call “regardless of the trend”. It is important to distinguish between these two groups, and to not follow the performance that a call creates, but rather read and incorporate the notes as part of your research. Then, when you are able to find inconsistencies between value and valuation you will be better prepared to capitalize on the opportunity.

The article Three Market Moving Calls Worth Noting originally appeared on and is written by Brian Nichols.

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