Wall Street sees 10% upside in these stocks

 

With the market near a record high, a lot of traders are now wondering where to turn for big returns. The goal of investing should never be to seek out quick returns, but it would be naïve not to seek out the stocks best poised to provide just such returns.

One of the easiest ways to seek out stocks with big upside potential is to rely on analyst estimates. We all want to believe that we are great stock pickers, but the reality of the situation is that most traders work on their portfolios part time when they have time between their regular job, family, and all the other distractions that life has.

Analysts, on the other hand, spend all day watching the market, and studying the stocks that they cover. That is not to say that you should always blindly following the recommendations of analysts, you should always do your own homework, but you can use analyst recommendations as a solid starting point when doing your research.

The following five stocks all have price targets that suggest 10% upside potential. Let’s take a closer look at each stock, and whether or not the stocks look like viable buy candidates at this point.

Facebook

Social media leader Facebook (FB) has been one of the hottest stocks in the market over the last couple of years, and shares are currently trading just 4.3% below their all-time high at $148.02. Analysts remain upbeat on the stock, setting an average price target of $167.14, which suggests the stock has additional 12.9% upside potential. Facebook has done a fantastic job generating revenue from its huge number of mobile users, and earnings have risen sharply in recent years. Over the last five years, the company’s earnings have risen, on average, 68.9%, and looking ahead the company is forecast to grow earnings by 25.4% per annum. The valuation is a bit high, with a P/E of 37.6, but given the company’s strong growth rates, the stock should continue to build on recent gains.

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Chart courtesy of www.stockcharts.com

Lowe’s

Home improvement retailer Lowe’s (LOW) has enjoyed solid growth during the housing recovery, and at this point the housing recovery shows no signs of slowing down. Low inventories across the nation continue to prop up home prices, and as a result homebuilders are trying to build as fast as they can, and current homeowners are more willing to invest in upgrading and updating their homes while prices are high. Lowe’s has grown its earnings by 20.6 per annum over the last five years, and is expected average annual earnings growth of 14.5% over the next five years. The stock has a P/E of 24.82, which is low enough to warrant additional upside as long as the company is able to hit its future growth estimates. LOW now trades at $$79.29, and analysts have an average price target of $87.69 on the stock, suggesting 10.6% upside. LOW appears to be a good buy at this time based on valuation and future growth estimates.

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Chart courtesy of www.stockcharts.com

Kroger

Grocer chain Kroger (KR) has struggled over the last year, but the stock has found its footing and is currently trending in the right direction. Last quarter the company posted better than expected results on both the top and bottom line, and it will next report earnings on June 15. The June 15 earnings report will be a major factor in whether or not the stock is able to build on recent gains, but a good earnings report could send shares sharply higher. KR is now trading at $30.24, and analysts have an average price target of $35.36, which suggests the stock is undervalued by as much as 16.9%. Analysts expect earnings of $0.57 for its fiscal first quarter, down from $0.70 during the same period last year. While a year over year earnings drop is never want you want to see, the drop has already been priced into the stock, and should not result in selling pressure as long as Kroger is able to hit the estimate. Based on the weakness the stock endured over the last year, you would probably be wise to hold off any new purchases until after the upcoming earnings report, but should the report show strength the stock has a lot of upside potential, and would look like a decent buy candidate.

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Chart courtesy of www.stockcharts.com

Ford Motor

Despite a strong auto sector, Detroit automaker Ford Motor (F) has experienced weak stock performance over the last year. 2017 was supposed to be the year that the auto market cooled, but that has not been the case, and now analysts expect another record-break year in terms of sales. Ford has struggled to grow earnings, and reported year over year earnings drops in each of the last three quarters. The lower earnings have pushed F shares lower, but there appears to be limited downside risk at this time, and analysts believe the stock is greatly undervalued. F is trading at $11.26, with an incredibly low P/E of 12.0. Analysts have an average price target of $13.38 on the stock, suggesting 18.8% upside potential. Ford’s recent report in April showed better than expected profit and sales, and the company will not report again until late-July. Given the low valuation, the stock looks attractive, and the stock should begin to erase some of its recent losses, but in order for the stock to trade up to the average price target the company is going to have to really impress Wall Street with its next quarterly report.

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Chart courtesy of www.stockcharts.com

Walt Disney

Entertainment mogul Walt-Disney (DIS) has been in a downward slide over the last month after a disappointing revenue report at the start of May. The company posted better than expected fiscal second-quarter profit, but sales were slightly weaker than forecast, and as a result Wall Street has driven the stock lower. The recent selling pressure comes after a nice six-month run up in the stock, which had pushed the valuation a bit high, so the recent sell off can be viewed a positive for investors wanting to jump into the stock but pay a little less for shares. The recent drop has lowered DIS’s P/E to 18.6, which is more reasonable considering that the company is expected to grow earnings by 4.0% this year, and 13.4% in 2018. The company’s pay-TV segment remains a concern, as ESPN has been steadily losing subscribers, but the company’s studio and amusement part segments remain very strong, and are expected to continue to be so. DIS trades at $106.60, and analysts have an average price target of $118.59 on the stock, which suggests 11.2% upside. While the stock has trended lower over the last month, the market remains upbeat on DIS’s future, with nine of the 19 analysts covering the stock giving it a “strong buy” rating, and another two rating it a “buy”. DIS is a stock to be cautiously optimistic on, only because of the pay-TV concerns, but it looks attractive at this time, as long as traders have a clear exit strategy in place just in case it continues to trend lower.

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Chart courtesy of www.stockcharts.com

Symbols: DIS F FB KR LOW
Michael Fowlkes

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.

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