3 Downgrades You Might Want To Buy

Big Lots Inc (NYSE:BIG) has been hands down one of the biggest winners from the pandemic and yet it still gets no love from the analysts. The analysts have been only neutral on this stock since well before the pandemic began and now it looks like the sentiment is going to turn a little bit sourer. Bank of America put the stock on a list of underperform-rated small and mid-cap stocks with downside potential that we just don’t see happening. In Bank of America’s view, the receding impact of stay-at-home trends and stimulus money is more than enough to offset strong management and the company’s nationwide rationalization.

Called Operation North Star, the rationalization is, in our opinion, the most important factor in this company’s turnaround so we definitely disagree with this analyst opinion. The consensus price target of $61.50 assumes this stock is fairly valued but there is a caveat, the analyst activity has been very light over the past year and the most recent price targets skew towards $75 and the high end of the range. Valued at only 9X its earnings, we think this stock should be trading well over $100 and with a much higher valuation. Don’t forget it is a high-quality dividend grower with a 1.9% yield and most other retailers are valued at nearly double the amount.

Bernstein downgraded Charter Communications (NASDAQ:CHTR) to Market Perform from Outperform but not because the company’s business is flagging. The problem here is that competition, especially from T-Mobile, is going to cut into the growth Outlook and that means downward revisions to consensus targets. Notably, Bernstein remains confident in the company’s fundamentals and views his hiccup as a long-term opportunity which is consistent with our own view of the stock.

Bernstein has a price target of $788 versus the high price target of $800 and the consensus price target of $729. The consensus sentiment is bullish verging on strongly bullish with a notable uptrend and both sentiment and the consensus price target over the past three months. At current price levels, the stock is fairly valued relative to the analyst community but we see this as the early stages of a buying opportunity. The trend in the consensus estimate is upward and should continue upward even after the company reports earnings next.

Clover Health (NASDAQ:CLOV) has been one of the higher profile and better-covered IPOs of the year but the luster is already fading. The company lowered its guidance and receives several downgrades that have price action just above the all-time low. JPMorgan) is the latest to issue a downgrade and that to underweight from neutral so it is a truly bearish call. They cut the price target to $9 from $15 which assumes this stock is fairly priced trading as is. The take-away, for us, is that JP Morgan is still bullish on managed care companies like this one think this one is more of a risk because of poor visibility. In our view, Clover Health may provide a little more risk compared to its more established peers but it also provides more opportunity for capital gain.

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