Wall Street’s Whisper List: 3 Stocks Primed for Public Frenzy
If there’s one thing I’ve learned about retail do-it-yourself investors, they love to hear about Wall Street whispers. These are upgrades or new coverage of stocks by analysts with a buy rating. Nothing moves the markets quite like the prognostications of sell-side analysts.
The challenge in tracking analysts’ moves is that they are human, which means they sometimes get it wrong. I remember one analyst covering Lululemon (NASDAQ:LULU), who was bearish about the athletic apparel brand for years, despite its continued growth in the U.S. store network.
I know from experience that it’s easy to get sucked into a single vision or view of a company’s potential, but much more challenging to recognize when the story has turned for worse or better.
When analysts upgrade stocks, we all need to downplay the noise. These professionals are paid to have opinions, not to be right 100% of the time. With that in mind, here are three Wall Street whispers that have been recently upgraded and are worth buying.
Progressive (PGR)
Progressive (NYSE:PGR) is one of my favorite insurance stocks. Its property and casualty (P&C) underwriting is second to none, and its CEO, Tricia Griffith, is one of the best in the country, not just among its insurance peers.
On Mar. 6, Morgan Stanley analysts upgraded Progressive to Overweight, equivalent of a Moderate Buy, from Equal Weight or Hold. Simultaneously, they upped their target price by $42 (23%) to $227, 16% higher than its current share price.
The analysts anticipate the company increasing its market share in personal auto insurance from 15.4% today to 18% by the end of 2028.
“Three factors support Progressive’s above industry level growth: (1) culture of tech innovation, which leads to early adoption of key technologies such as telematics; (2) a strong competitive position, which allows the company to grow without fierce competition and; (3) mix shift opportunities via market segmentation and shift upmarket,” Morgan Stanley wrote in a note to clients.
Assuming it achieves this growth target, the company’s knack for annual underwriting profits suggests its share price has nowhere to go but up. The company uses underwriting margin, defined as the pretax underwriting profit (loss) expressed as a percentage of net premiums earned, to assess its underwriting profitability. In the past three years, it’s been an average of 4.7%.
It’s an excellent long-term buy.
Target (TGT)
Target (NYSE:TGT) reported surprisingly strong Q4 2023 results on Mar. 5. That put a fire under TGT stock, which gained more than 12% following the news. It also prompted some analysts to upgrade its stock or the target price.
HSBC upgraded Target from hold to buy on Mar. 5. It also increased its target price by nearly 40%, from $140 to $195, 12% higher than its current share price.
“We upgrade our rating … given better earnings momentum ahead and feeling more comfortable about the strategy and FY25 guidance. Although the shares have run up recently, our revised TP still implies 15.7% upside from current levels,” Investing.com reported HSBC analysts’ March 5 note to clients.
Its growth strategy calls for a return to opening full-size stores rather than the smaller formats it’s been rolling out recently. Target plans to open more than 300 stores while renovating most of its nearly 2,000 stores over the next decade. At the same time, it will continue investing in its supply chain to deliver maximum efficiency for its overall business. These 300 stores should contribute $15 billion in annual sales to its top line.
While sales in 2023 fell by 1.6% to $107.41 billion, operating earnings increased by 48.3% to $5.71 billion, an operating margin of 5.32%, 179 basis points higher than in 2022. TGT shares are now up 69% from their 52-week low in October 2023.
Cable One (CABO)
The smallest of the three stocks is Cable One (NYSE:CABO), a Phoenix-based cable company that once was part of the Washington Post until its spin-off in July 2015. The company has over 1 million residential and business customers across 24 states.
On Mar. 5, MoffettNathanson upgraded Cable One from neutral to buy, although it did lower its target price by $220 to $615, still 40% higher than its current share price. Despite several headwinds facing the company, including offering lower broadband prices to grab market share, possibly killing any revenue growth, MoffettNathanson’s Craig Moffett believes its valuation is way too low given its quality assets. It trades at 1.63x sales and 3.95x cash flow, both lower than they’ve been since becoming an independent company in 2015. It’s the value play of the three.
In 2023, its net margin was 15.9%, 220 basis points higher than a year earlier, on a 1.6% decline in revenue to $1.68 billion. Don Graham of the Washington Post remains one of the company’s largest shareholders.
On the date of publication, Will Ashworth 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.
