Stocks can be pushed higher or lower as analysts provide their outlooks. These calls are not enough to base an investment on, but should be considered as part of your research. Therefore, I am assessing a few of Thursday’s top calls, and determining if each was a good call.
Groupon Inc (NASDAQ:GRPN)
When it comes to technology, there is one analyst that I take more seriously than the others, and that is Gene Munster. Munster has been incredibly accurate at predicting trends, stock prices, and macro conditions. Therefore, when he says that Groupon Inc (NASDAQ:GRPN) could deliver a Q1 daily deals take rate of 33%, I tend to listen.
According to Munster, a 33% take rate would equate to revenue of $607 million, or $17 million better than the consensus for Groupon Inc (NASDAQ:GRPN)’s current quarter. While Munster has been correct in his calls of many tech stocks, we must also admit that he has had some trouble with Groupon Inc (NASDAQ:GRPN). The Piper analyst was quite bullish going into Q4 last quarter, which didn’t turn out so well. As a result, it’s hard to determine if maybe he’s too bullish on the stock or if there really is a fundamental shift occurring. Either way, the stock rallied 5.24% and I haven’t seen enough consistency from the company to call it a “buy.” Therefore, I think I will sit this one out.
Brown Shoe Company, Inc. (NYSE:BWS)
The Brown Shoe Company, Inc. (NYSE:BWS) continues with its strong year, as the stock rallied another 5.19% on Thursday. The large gains came after Brean Capital initiated coverage with a “Buy” rating, saying “it’s a compelling turnaround story.” The firm believes in the company’s strategy of downsizing to become slightly smaller but more profitable.
In the end, the market places a large amount of emphasis on earnings, and Brean Capital believes that the company’s strategy to become more profitable will be rewarded over time. I think this strategy makes sense, if the company is undervalued and if there is room for margin improvement. With Brown Shoe Company, Inc. (NYSE:BWS), there is a lot of room for improvement. The company has revenue of $2.60 billion yet a market cap of just $740 million. Therefore, I am a believer in this company’s future, but I would keep it on a short leash and would expect to see fundamental improvements every quarter, or else I would sell.
Netflix, Inc. (NASDAQ:NFLX)
On Wednesday, shares of Netflix, Inc. (NASDAQ:NFLX) traded lower after a downgrade. But on Thursday, Goldman raised its price target to $184 from $125, although reiterated its “Neutral” rating. Goldman’s call was more long-term, as they believe that the company’s domestic streaming sub base will grow to 53 million in five years, from its current 22.8 million. As a result, Goldman expects this increase in connected users will make the company more profitable and that it will be able to leverage its sub base to grow further.
As an investor, I like the call, I think $184 is fair based on its current price, but I do not favor the reasons. Sure, sub bases are important for the company, but looking ahead, competition continues to grow and I think Netflix, Inc. (NASDAQ:NFLX) is doing a great job in positioning itself for global growth. Therefore, I do think Netflix, Inc. (NASDAQ:NFLX) is a compelling story and I think expectations have been adjusted to its new business model and that shares will rise over time.
As an investor, I like the call, I think $184 is fair based on its current price, but I do not favor the reasons. Sure, sub bases are important for the company, but looking ahead, competition continues to grow and I think Netflix, Inc. (NASDAQ:NFLX) is doing a great job in positioning itself for global growth. Therefore, I do think Netflix, Inc. (NASDAQ:NFLX) is a compelling story and I think expectations have been adjusted to its new business model and that shares will rise over time.
Conclusion
In my book, Taking Charge With Value Investing (McGraw-Hill, 2013) I discuss how to assess the opinions of analysts, and how to use them to your advantage. Typically, there are two types of calls: those that follow the trend and those who call regardless of the trend. It is important to distinguish between these two groups, and to not follow the performance that a call creates, but rather read and incorporate the notes as part of your research. Then, when you are able to find inconsistencies between value and valuation you will be better prepared to capitalize on the opportunity.
The article Market Moving Upgrades Worth Noting Last Week originally appeared on Fool.com and is written by Brian Nichols.
