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Speculating on companies that have recently changed their ratings can be a good short-term strategy. Normally, companies will see increases in their prices after these changes. The ratings are updated daily and can therefore change daily. They can change because of a change in the analyst's estimate of the stock's fair value, a change in the analyst's assessment of a company's business risk, or a combination of any of these factors.

I assessed companies which were upgraded on September 21, and I chose the top three companies with a change on ratings.

These significant changes are:

  • AutoNation Inc (AN) changed rating from neutral to buy.
  • The Wet Seal, Inc. (WTSLA) changed rating from neutral to buy.
  • Altria Group, Inc. (MO) changed rating from neutral to buy.

These ratings are a way to qualify how the analyst views the potential for stock price appreciation. When an analyst changes his/her rating, the security's price may change. This depends on how closely investors follow the analyst's recommendations. An upgrade generally tends to increase the price, while a downgrade does the opposite. However, it is not only the change but the reason for the change that is important to understand.

These three stocks are valued for a change from neutral to buy. It is considered a very significant change because their ratings had remained static for a long time. This change has to strongly favor the valuation of the companies mentioned above as well as the vision of future investors. Normally, these changes for the better are due to lower debt and improvements in the companies' cash position. These are two keys to perform a follow-up or think in terms of a purchase of these stocks.

Here is a look at the three stocks:

1. AutoNation Inc (AN) through its subsidiaries, operates as an automotive retailer in the United States. The company offers various automotive products and services, including new vehicles; used vehicles; parts, and automotive repair and maintenance services; and automotive finance and insurance products, which arranges financing for vehicle purchases through third-party finance sources. It also provides a range of vehicle maintenance, repair, paint, and collision repair services, such as warranty and customer-pay service work. In addition, the company offers various vehicle protection products, including extended service contracts, maintenance programs, guaranteed auto protection, tire and wheel protection, and theft protection products.

Chart Analysis

Click to enlarge

- The MACD marks a change of upward trend. RSI is in a good position. The stock is in a bullish channel.

New Rating

BofA/Merrill Lynch upgraded AutoNation Inc from Neutral to Buy.

Fundamental Analysis

Consensus Recommendation

(SOURCE)

Financials

The company reported the second-quarter results on July 18 with the following highlights:

Revenue$3.90 Billion
Net Income$78.6 Million
Cash$62.1 Million

Short Interest

Settlement DateShort InterestAvg Daily Share VolumeDays To Cover
8/31/20127,681,154391,09019.640374
8/15/20127,889,783403,51419.552687
7/31/20127,795,840771,39110.106211

My Fundamental and Chart Analysis

The stock has a $43.75 price target from the Point and Figure chart. The short interest shows a decrease. There have been nineteen insider buying transactions this year. The MACD marks a change of upward trend and for this reason, I would purchase shares with a target price of $43.75.

2. The Wet Seal, Inc. (WTSLA) a specialty retailer, operates stores that sell fashionable and contemporary apparel and accessory items designed for female customers. The company operates primarily two mall-based chains of retail stores under the Wet Seal and Arden B names. Its Wet Seal stores provide fashionable and basic apparel and accessories for girls; and Arden B stores offer contemporary fashion, dresses, and sportswear separates and accessories for the contemporary woman.

In addition, the company operates Web-based stores, including wetseal.com that provides Wet Seal merchandise; and ardenb.com, which offers Arden B merchandise. As of January 29, 2011, it operated a total of 558 stores, including 472 Wet Seal stores and 86 Arden B stores in 47 states and Puerto Rico.

Chart Analysis

- The MACD marks a change of downward trend. The stock is in a bullish channel. RSI is in a good position.

New Rating

Roth Capital upgraded Wet Seal Inc from Neutral to Buy with a price target of $4.00 (from $3.00).

Fundamental Analysis

Consensus Recommendation

(SOURCE)

Financials

The company reported the second-quarter financial results on August 24 with the following highlights:

Revenue$135.26 Million
Net Income($12.36 Million)
Cash$146.47 Million

Short Interest

Settlement DateShort InterestAvg Daily Share VolumeDays To Cover
8/31/20124,237,5231,099,0833.855508
8/15/20124,548,557967,0624.703480
7/31/20124,869,6041,212,0354.017709

My Fundamental and Chart Analysis

The stock has a $3.5 price target from the Point and Figure chart. There have been four insider buying transactions this year. The stock is trading at an incalculable forward P/E. I would buy a small speculative position in the range of $2.7-$2.8 because the MACD marks a change of downward trend and the recent "upgrade" recommendation will help overcome the $3.5 target price.

3. Altria Group, Inc. (MO) through its subsidiaries, engages in the manufacture and sale of cigarettes, smokeless products, and wine in the United States and internationally. It offers cigarettes primarily under the Marlboro brand; smokeless tobacco products under the Copenhagen, Skoal, Red Seal, Husky, and Marlboro Snus brands; cigars principally under the Black & Mild brand; and pipe tobacco. The company also produces and sells blended table wines under the Chateau Ste. Michelle and Columbia Crest names; and distributes Antinori and Villa Maria Estate wines, and Champagne Nicolas Feuillatte in the United States. In addition, it maintains a portfolio of leveraged and direct finance leases in rail and surface transport, aircraft, electric power, real estate, and manufacturing. The company sells its tobacco products primarily to wholesalers, including distributors; large retail organizations, such as chain stores; and the armed services

Chart Analysis

- The MACD marks an upward trend. The stock is in a bullish channel. RSI is in a good position.

New Rating

Citi upgraded Altria from Neutral to Buy with a price target of $39.00.

Fundamental Analysis

Consensus Recommendation

(SOURCE)

Financials

The company reported the second-quarter financial results on July 25 with the following highlights:

Revenue$12.13 Billion
Net Income$2.42 Billion
Cash$1.52 Billion

Short Interest

Settlement DateShort InterestAvg Daily Share VolumeDays To Cover
8/31/201244,567,90614,430,4733.088458
8/15/201244,930,5958,923,9385.034839
7/31/201249,131,1229,562,571

5.137857

My Fundamental and Chart Analysis

The stock has a $36.6 price target from the Point and Figure chart. Short interest has decreased in a month. There have been two insider selling transactions this year. The stock is trading at a forward P/E of 15.77. I would buy a small speculative position because the MACD marks an upward trend and the recent "upgrade" recommendation.

*Chart data sourced from stockcharts, all other data sourced from Nasdaq.com and yahoo.com as well as the webs of the previously mentioned companies.

Source: 3 Stocks Upgraded On September 21 To Consider

Additional disclosure: Investors buy and/or sell at their own risk. I declare that I may day-trade any stock at any time mentioned in this article. For me "long" is until I sell and few tell you that. I do not "short" stocks and few tell you that too. I also get paid one penny per view from SA and other than being published by SA and my own private stock account, I have zero connection to Wall Street and few tell you that too.