For better or worse, Wall Street analysts can meaningfully influence a given company’s stock price — particularly in the short term.
Investors should understand a couple of things before making decisions based on price targets: First of all, analysts tend to have incentive structures that encourage more bullish outlooks. That’s because the same financial institutions that employ analysts often have business relationships with the companies they’re analyzing, via a previous initial public offering listing, underwriting bonds, outstanding lines of credit and so on. These banks want to stay on good terms with their clients, and so they tend not to trash their stocks.
That said, while it’s much more prudent to invest based on fundamentals and long-term prospects, if most Wall Street analysts think a given stock is dramatically undervalued, it could be worthwhile to take a look at why that is.
Incentives aside, analysts tend to have deep knowledge of industry economics and direct lines to company management, so when they highlight stocks with the most upside, it’s not often based on a whim.
Here are five high-upside stocks, with 50% upside or more as of closing prices on March 5:
— Twilio (ticker: TWLO)
— Barrick Gold Corp. ( GOLD)
— Peloton Interactive ( PTON)
— ADT ( ADT)
— Overstock.com ( OSTK)
Twilio is among the largest U.S. publicly traded companies that analysts think have 50% or more upside. The $512.83 price target is about 52% more than its last closing price, so even if shares make modest gains, analysts still think there’s plenty of runway left.
Historically, it hasn’t paid to bet against Twilio, a cloud-based software platform for developers that allows programmers to build messaging, voice and video tools into their apps. Case in point: If analysts would’ve asserted 50% upside in TWLO a year ago, their estimates would’ve been conservative; the stock is up more than 200% in that time.
While the famous phrase “past performance is not indicative of future results” still holds true, “old school” Twilio investors who got in at Twilio’s opening day closing price of $28.79 have been amply rewarded. Shares are up more than 1,000% in less than five years. That’s an annualized return of more than 68%.
Sales growth has been the primary driver of Twilio’s rally, but in 2022, analysts expect the stock to swing into the black, which should usher in a new era of fast-growing profits.
Barrick Gold Corp. (GOLD)
While Twilio is the most richly valued and one of the fastest-growing high upside stocks, Barrick Gold is notable for being incredibly cheap by traditional valuation metrics. Among all companies worth at least $2 billion that analysts think have at least 50% upside, Barrick has the single lowest price-earnings to growth (PEG) ratio at 0.63.
The average analyst price target for the Canada-based gold and copper miner is $32.11, a roughly 62% premium from the stock’s closing price on March 5.
While both the price target and the PEG ratio do imply Barrick Gold is one of the cheaper established stocks on Wall Street, this value stock is almost entirely at the mercy of changes in gold prices. That hasn’t been the greatest dynamic recently, as gold has defied the commonly held belief that it will outperform when the government aggressively grows the money supply.
Peloton Interactive (PTON)
This roughly $30 billion home workout equipment giant went public in 2019 at $29 per share. After a short, unimpressive period of mediocre returns, shares took off rapidly in 2020. The unpredictable pandemic created unforeseen ripples of demand in very particular parts of the economy, one of which happened to be Peloton’s bread and butter.
Although up more than 300% year over year, the stock is still well off its 52-week highs; the spate of vaccinations and reopenings has negatively impacted shareholders’ opinion of PTON, which will almost certainly see less demand for its products as consumers return to public gyms and spend less time in the home. Shares are down around 30% year to date.
The stock’s price target of $166.35 represents 58% upside from its closing price on March 5.
ADT, the $6 billion home security giant, is similar to Barrick Gold in that both analysts and traditional valuation metrics seem to imply the stock is dramatically underpriced. Of all the companies worth $2 billion or more that analysts think have at least 50% upside, ADT has the single lowest forward price-earnings ratio at 6.4.
The $11.47 average analyst price target implies upside of 53% for ADT shareholders at the stock’s March 5 closing price.
Technically, shareholders would also be juicing a little more out of any such potential rise, since the steady and stable Boca Raton, Florida-based ADT — which has roots dating back to 1874 — also pays a 2% dividend.
One of the more overlooked names in online commerce, Overstock.com is the smallest company on this list with a market capitalization of around $2.6 billion. It’s also the stock with the most upside according to analysts, with a price target of $108.67 offering a whopping 74% gain from OSTK’s March 5 closing price.
There are a number of ways to make money in the stock market, but one of the more popular strategies is to develop a philosophy about what sectors or industries are poised to thrive, then drill down from there to find attractive stocks in the space. The case for OSTK could easily be made using such a top-down approach, as e-commerce looks poised to continue growing its market share against brick-and-mortar retailers.
Stocks like Etsy ( ETSY) and eBay ( EBAY) are already worth tens of billions of dollars, and the biggest player in the space, Amazon.com ( AMZN), is a $1.5 trillion company. That underscores the size of the total addressable market, and the opportunity to scale for the sub-$3 billion company.
Up roughly 880% over the last year, Overstock has been surging amid rapid pandemic-fueled revenue growth; third-quarter sales rose 111%. While that pace will clearly peter out, onboarding new customers to its site should still bring long-term value to shareholders.
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Update 03/08/21: This story was published at an earlier date and has been updated with new information.