As an avid investor I look closely at the recommendations of many analysts. These recommendations, in most cases, set either a positive or negative tone to an immediate trading session of the specific stock being analyzed. That said, when a stock receives an upgrade, the stock should move positively, and when a stock receives a downgrade it should move negatively, however, that's not always the case.
In this article I wanted to focus on the moves of four stocks that should have moved a bit differently than they had, after they were upgraded during the week of July 16th - July 20th. Of the four stocks screened, two reacted very positively, and the two hardly reacted at all.
The 2 Positive Reactions
Of the four companies screened, two of them rose at least 7.00% as a result of their respected upgrades, and possess several catalysts that could contribute to their long term growth. The first of the two is Stanley Black & Decker (SWK), which rose 10.4% for the week as it was upgraded to a BUY at KeyBanc Capital Markets. The biggest variable for SWK will be continued growth. If the company can surpass both growth estimates (10.4%) and EPS estimates ($1.48/share on revenue of $2.85 billion dollars) for the September quarter we could continue to see that stock move in a positive manner over the next few weeks.
The second of the two is Tiffany & Co. (TIF) which rose 7.0% for the week and was upgraded to a BUY from Neutral at Goldman Sachs. There are two catalysts with regard to TIF that I find very positive at current levels. The company has demonstrated a Return on Equity (ROE) of 18.88% over the last 12 months and a Return on Assets (ROA) of 11.65% over the same period. Considering both numbers are over 10%, I think TIF is a great growth play at current levels.
The 2 Neutral Reactions
Two companies reacted in somewhat of a neutral manner when compared to the rest of the group. In an effort to clarify what 'neutral manner' means, I'm using the reaction range of 1.0% to the upside and 1.0% to the downside. The four companies that fell into this category were the Walt Disney Company (DIS) (which was upgraded to a BUY at BAML), and Wells Fargo (WFC) (which was reiterated as a BUY by Compass Point, had its price target increased to $41). Even though the reactions were fairly neutral (DIS reacted pretty positively, rising roughly 0.83%, and WFC reacted somewhat negatively, falling roughly 0.29%), both stocks are expected to grow at least 19% during the third quarter and as an added bonus they'll also attractive the income driven investor as they each pay conservative dividends. I'm not too concerned by the immediate reaction, but I'd be a bit more attracted to each if their weekly performance had returned at least 2% to the upside.
The Income Angle
As an income driven investor I'm always looking for a steady dividend and when dividend paying stocks get upgraded it's generally a very good thing. In the case of the four companies screened, each has a yield that happens to be reliable, yet pretty conservative.
Symbol | Yield | Annual Dividend |
SWK | 2.9% | $1.96 |
WFC | 2.6% | $0.88 |
TIF | 2.3% | $1.28 |
DIS | 1.2% | $0.60 |
The Growth Angle
Being an investor who considers growth a secondary variable when screening stocks, these four companies certainly stood out, even though only three are expected to grow at a faster pace than the S&P 500. With the S&P only expected to grow 8.8% for the quarter, three of these companies should surpass that number and the fourth could certainly outperform its projected negative quarterly growth.
Symbol | Q3 Est. Growth |
WFC | 19.4% |
DIS | 19.2% |
SWK | 10.4% |
TIF | -2.2% |
Potential investors should consider establishing a small position in all four companies from either an income or growth perspective, and add to that position as both earnings and dividend dates approach.
