These analysts made good calls on Tuesday, but not all of these market movers will perform strongly long term. Therefore, let’s take a look at three upgrades and assess which ones should be explored.
New discoveries continue to drive gains
Marathon Oil Corporation (NYSE:MRO) received an especially encouraging upgrade on Tuesday, from Fitch Ratings to positive from stable. Fitch upgraded shares because it says the company’s shale liquids are seeing strong growth, particularly at Eagle Ford. Fitch also notes that Marathon has a large inventory of drilling opportunities, which suggests increased production and reserve growth.
Marathon Oil Corporation (NYSE:MRO) moved 3% on this upgrade, making its one-year return 45%. The company has made some nice discoveries over the last year, and has seen much of its gains due to its large reserve. Lately, the optimism has been surrounding the recent find in the Gulf of Mexico; a discovery that could result in 100 million barrels of oil. With that said, Eagle Ford is still seeing great growth, as noted by Fitch, thus I agree with Fitch that the upside for Marathon Oil Corporation (NYSE:MRO) is quite high.
Growing faster than the consensus
Krispy Kreme Doughnuts (NYSE:KKD) rose 5% after Longbow raised its price target from $20 to $23, reiterating its buy rating. According to the firm, channel checks indicate comparable store growth of 8.2% for Q2, which was the basis of the upgrade.
Krispy Kreme Doughnuts (NYSE:KKD) has seen its valuation increase more than 30% over the last month behind a quarter where total revenue grew 11.2% year-over-year and comparable growth picked up steam towards the end of the quarter. Most analysts expect this comp growth to continue into Q2, expecting comp growth of 7%.
Longbow is stating that its channel checks indicate comp growth that is 1.2% better than the consensus. If accurate, this would be huge for the company. If Longbow’s target is reached then Krispy Kreme Doughnuts (NYSE:KKD) would be trading at about 3 times next year’s sales. For a company with double-digit growth, I think this is a fair target.
Research In Motion Ltd (NASDAQ:BBRY) increased almost 4% on Tuesday after RBC upgraded its expected shipments after channel checks. RBC had previously forecasted 2.75 million BB10 phones for the May quarter, but now is expecting 3.5 million phones.
According to RBC, Research In Motion Ltd (NASDAQ:BBRY)’s biggest problem is that its performance is mixed throughout the globe. The company has seen strong demand in the U.K., Canada, and even in the Middle East, but not in the U.S. RBC suggests that this fact, combined with 32% of the company’s float being short, could produce a nice post-earnings pop as U.S. markets might be discounting the success of BB10 globally.
Personally, I understand RBC’s stance, and I believe that they could very well be correct in their assessment. However, I am a bit cautious right now. The company is fast-approaching quarterly results, and the stock has been wildly unpredictable for the last three months.
At this point, I view Research In Motion Ltd (NASDAQ:BBRY) as a high-risk and high-reward investment. Thus, I would proceed with caution, and would not be willing to make a large investment on the channel checks of just one analyst; especially when the analyst community is so indecisive in their outlooks
Final thoughts
To me, Marathon Oil Corporation (NYSE:MRO) looks to be the safest investment while Krispy Kreme Doughnuts (NYSE:KKD) is presenting the greatest amount of upside. Krispy Kreme Doughnuts (NYSE:KKD) is a company with established growth that continues to outperform expectations. As a result, if I had to choose an investment from this list, I would definitely lean more towards Krispy Kreme Doughnuts (NYSE:KKD), with Marathon Oil Corporation (NYSE:MRO) a close second. In my opinion, Research In Motion Ltd (NASDAQ:BBRY) has too many questions ahead of earnings, thus I would wait before buying.
Brian Nichols has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article 3 Upgrades You Should Note originally appeared on Fool.com.
Brian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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