We saw a number of market-moving analyst calls today, in particular with large-cap stocks. Let’s look at the top three to determine if value exists.
Anheuser-Busch InBev NV (ADR) (NYSE:BUD)
After a five-year 108% return, analysts at Stifel Nicolaus believe there is even more upside potential in shares of Anheuser-Busch InBev NV (ADR) (NYSE:BUD). The firm raised its price target from $94 to $112, which would be a nice premium on its current price of $95.35. The firm specifically points to the Grupo Modelo purchase and believes that there is still room for domestic growth along with international growth. The firm believes that new advertising initiatives will create an emergence of new brands, which should produce further gains from the stock.
Walgreen Company (NYSE:WAG)
UBS upgraded shares of Walgreens from Neutral to a Buy, and set a price target of $48. As a result, the stock is currently trading with gains of 4%, which has also pushed the industry higher. The firm believes the impact of the Alliance Boots transaction is now “clear” and that it will produce a meaningful impact to the fundamentals of the company. Furthermore, the firm reiterates the belief that gross margins could improve in 2013. This has been whispered over the last several months as generic exposure increases in its stores.
Despite a three-month 17% return, shares of Walgreen Company (NYSE:WAG) are still attractive. The stock trades with a price/sales of just 0.55 and has a forward P/E ratio of 11.59, which is consistent with the market. I wouldn’t go as far to say that shares are cheap, because when you compare its price/sales to that of Rite Aid Corporation (NYSE:RAD), 0.06, I think it’s clear that there is better value in the industry. WAG has been the stock of choice in the space, therefore it could see additional gains, although I do think there is better value.
Target Corporation (NYSE:TGT)
While both Walgreen and Anheuser-Busch InBev NV (ADR) (NYSE:BUD) saw upgrades, Target Corporation (NYSE:TGT) was downgraded on Wednesday to Neutral from Buy by Buckingham Research, with a price target of $69. According to the firm, the stock is getting too expensive after its 13.4% run higher in 2013. Furthermore, the firm adds that there could be fundamental problems after the company has gotten off to a slow start in the new year.
Target is usually compared to Wal-Mart Stores, Inc. (NYSE:WMT) due to the similarities between the two business models. Therefore, I find it interesting that Target is near equal on a price/sales basis to Wal-Mart and is also expecting better bottom level growth in 2013 and trades with a lower forward P/E ratio. Additionally, Target Corporation (NYSE:TGT)’s operating margins are slightly better and it is seeing greater top-line growth compared to Wal-Mart. Therefore, I find this downgrade, on a valuation basis, somewhat odd, and believe that Target is in fact still a Buy.
Conclusion
In my book, Taking Charge With Value Investing (McGraw-Hill), I examine human behavior and the psychological effects that take place in the minds of investors when a stock shoots higher or falls drastically lower (think roulette at a casino), such as after an analyst’s call. For many investors, chasing these trends is common, even addicting, and very few are capable of realizing their losses because of their occasional gain.
Investors need to avoid this behavior after a call, and look not at the performance of the stock but rather the performance of fundamentals. By doing so, you will be able to find the inconsistencies and a distinction between performance and fundamentals, which creates value and allows for large returns.
The article 3 Notable Large-Cap Upgrades originally appeared on Fool.com and is written by Brian Nichols.
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