When an analyst firm upgrades a company, the share price associated with the stock of that company can increase significantly. In the case of the two companies featured, both stocks have seen significant gains over 7.00% during the last two trading sessions. Not only do I think both companies are attractive based on the simple of their respected upgrades but they also outpace some of their competitors in terms of fundamentals.
Cincinnati Bell (CBB), which closed trading on Tuesday at $5.06/share, (up nearly 6.80% from Friday's close) was upgraded by Raymond James on Tuesday. The analyst firm adjusted their rating from an Outperform to a Strong Buy and set a $6.00/share price target.
The Cincinnati, Ohio-based firm, together with its subsidiaries, provides telecommunications and technology services. The company's Wireline segment offers local voice services, including local telephone service, switched access and value-added services, such as caller identification, voicemail, call waiting and call return; and data services comprising high-speed Internet using digital subscriber line technology and over fiber using its gigabit passive optical network, as well as local area network services, network access, metro ethernet and asynchronous transfer mode data transport services.
When it comes to Cincinnati Bell, there are two things potential investors should consider from a fundamental perspective. The first thing long-term investors should consider is the company's operating margin over the last 12 months and how CBB is able to outpace some of the competition within the telecom sector. Over the last 12 months, CBB has demonstrated an operating margin of 21.30%, whereas direct competitor Verizon, Inc. (VZ) has only managed to demonstrate an operating margin of 17.97%.
The second thing to consider in terms CBB is the percentage of shares held by insiders and how those percentages compare with some of the company's industry-based competitors. At Cincinnati Bell, insiders currently hold about 2.58% of the total number of shares outstanding. One thing potential investors should note is the fact that insiders at CBB have a much stronger position in their own company than the insiders at both Verizon who only hold 0.01%% and AT&T (T) who only hold 0.04% of the total shares outstanding of their respected companies.
GameStop, Corp. (GME), which opened trading on Tuesday at $19.85/share, (up nearly 8.00% from Friday's close) was upgraded on Tuesday by Goldman Sachs. The analyst firm adjusted their rating from an Outperform to a Buy on the company.
The Grapevine, Texas-based firm operates as a video game retailer. It sells new and used video game hardware; physical and digital video game software; and accessories and other products that primarily include controllers, memory cards and other add-ons, as well as strategy guides, magazines and trading cards. The company also offers personal computer entertainment and other software across various genres, including sports, action, strategy, adventure/role playing and simulation, as well as products that relate to the digital category comprising network point cards, prepaid digital and online time cards and digitally downloadable software.
In terms of GME, there are two variables potential investors should consider before establishing a position. I think the most important of these catalysts is going to be the company's profit margin, and how it outpaces some of the competition within the video gaming sector. Over the last 12 months, GME has demonstrated a profit margin of 3.55%, whereas direct competitor Best Buy (BBY) has only managed to demonstrate a negative profit margin of -2.43%. With a profit margin nearly 2.5 times that of BBY's, GME clearly outpaces some of their competition.
The second variable potential investors looking to establish a position in GME should consider is the percentage of shares held by insiders which currently stands at 2.30%. As previously stated, when insiders hold a large percentage of the outstanding shares, it symbolizes a long-term confidence in the growth of the company. If we look at Target Stores (TGT), we'll notice that insiders only hold 0.12% of the total number of shares outstanding, which to me symbolizes a lesser confidence in the company than the insiders have at GME.
Potential investors looking to establish a position in either CBB or GME should do so with a small to moderate position and gradually add to that position as both companies look to demonstrate quarterly an annual growth which surpasses analysts' expectations. Two of the ancillary catalysts potential investors should also consider are the margins and continued insider transactions at both firms. If both companies' margins continue to expand in the coming months I see no reason as to why the stocks shouldn't be trading much higher.