What’s a stock really worth? This is perhaps one of the hardest questions to answer when it comes to investing. The Efficient Market Hypothesis would try to make you think that the current share price reflects all of the available information. The reality is something different. The “efficient” theory doesn’t really prove out to be efficient at all.
Are analysts on Wall Street more efficient? Analysts issue price targets on stocks that are generally for a 12-month outlook from the date they make each report. It’s not exact science. Their price targets can range anywhere from guesswork to detailed analysis leading up to a sum-of-the-parts. These all lead to arguments over the true value of a stock or the market.
Oggonomics is identifying some very popular stocks with earnings reports behind them which may now appear to be overvalued.
Some analysts issue big upside price targets with their favorite “stocks to Buy.” Other analyst reports cover “stocks to sell.” Research calls tend to favor “Buy” ratings over “Sell” ratings by a very wide margin. Analysts may even have less than 20% of their coverage universe listed as Sell, Underweight, or Underperform. It’s amazing that analysts have all of the same information (or almost all of it) and they can have polar opposite views.
Oggonomics is never permanently bullish. This core mantra should prove it — “Always being bullish is foolish. And always being bearish means you are broke!”
Earnings season for the first quarter of 2024 has already seen most of the largest corporations in technology, finance, and industrial sectors report earnings. There have been some companies which analysts would now tell you are “over their skis.” That might not mean the stocks cannot rise. History has even proven time after time that ANY stock can rise.
So what happens when a stock is priced today at a value above analyst price targets? Some investors will tell you this is when it’s time to sell. Other investors will take a contrarian stance and say that is the time to buy.
Some of these overvalued stocks performed well after earnings. Others have performed badly. It’s up to investors to decide where the so-called “true value” of these stocks should be. Here are four very popular stocks that analysts now think are overvalued or very close to being overvalued.
PALANTIR’s A.I. CRAZE
Palantir Technologies Inc. (NYSE: PLTR) is one stock that analysts and investors alike have a hard time valuing. The company is super-secretive about contracts and customers. They are even secretive about what they do for their customers. And its management team and its employees are believed to be among the brightest people that could be hired by the government and corporations.
Palantir shares fell 14% in the post-earnings reaction and the first-day reaction was -14.5% at $21.55 after having closed at $25.21 ahead of earnings. And even after this drop, that was still a $48 billion market cap! So what’s this stock worth? The consensus analyst price target was $20.82 — well above the post-earnings reaction and pre-earnings trading.
While D.A. Davidon maintained a Neutral rating, the firm raised its price target to $24 from $19. Then the other side of the coin is Deutsche Bank, with a Sell rating despite raising its price target to $20 from $18. That’s still under the price at that moment. And what about RBC Capital? RBC still has a Underperform rating and its target being raised from 45 to $9 is less than half the price at that moment. Citi kept a Neutral rating but raised its target to $25 from $23, while HSBC kept a Hold rating but raised its target to $23 from $22.
The most recent short interest showed 77.92 million shares short, about 1.1 Days to Cover. That is high but the short interest report two weeks earlier showed 82.37 million shares in the short interest.
QUALCOMM CHIP & A.I. CRAZE
QUALCOMM Inc. (NASDAQ: QCOM) has been quite strong after earnings and its shares have recently hit all-time highs. But after hitting a post-earnings high of $184.31, it’s now up about 80% from its 52-week low and the stock is still about 10% higher than its pre-earnings consensus analyst target price of $167.69. That consensus target price has crept higher after jumping from $164.11 ahead of earnings to $180.10 after earnings… and now it’s at $183.00 give or take.
Qualcomm has its bulls. Canaccord Genuity, Baird, KeyBanc, Wolfe Research, Susquehanna, and Benchmark all have price targets of $200 or higher. They say there is 10% upside or more over the next year. But that’s far from every analyst! Look at these calls:
- Morgan Stanley (Equal-Weight) raised its target to $172 from $158.
- UBS (Neutral) raised its target to $175 from $165.
- Wells Fargo (Underweight) raised its target to $140 from $120.
- Citigroup (Neutral) raised its target to $170 from $160.
And now look at how many of the Buy, Outperform and Overweight ratings are barely above the current price:
- Piper Sandler (Overweight) raised its target to $185 from $165.
- Barclays (Overweight) raised its target to $185 from $155.
- BofA (Buy) raised its “price objective” to $180 from $173.
- J.P. Morgan (Overweight) raised its target to $185 from $170.
It seems unlikely that the analysts with the same as a Buy rating and who have $180 and $185 price targets may unilaterally throw in the towel if Qualcomm stock hits $185. There is not a unilateral magic trigger that forces analyst calls immediately based solely on stock prices. That said, some analysts have to respond within days. Many of those same analysts might even feel they look silly if they are raising a price target just a week after they raised the price target last time.
AMGEN’S FUTURE IN OBESITY OR ENBREL?
Amgen Inc. (NASDAQ: AMGN) is the U.S. “King of Biotech” and has so far managed to be the only biotech to ever be added to the Dow Jones Industrial Average. As such, and with a 3% dividend yield, it trades more or less just like a Big Pharma stock. Amgen’s stock was last seen trading at $300.00. Its pre-earnings price was $278.39 and its post-earnings reaction jumped well over 10% to $311.29. But even after pulling back to $300 the biotech stock is up about 4% year-to-date and up 26% from a year ago. That feels like a lot of mixed messages.
Here are some of the Amgen analyst calls seen in recent days:
- RBC Capital (Outperform) target cut to $328 from $332.
- Morgan Stanley (Equal-Weight) target raised to $310 from $271.
- UBS (Neutral) target raised to $307 from $284.
- Barclays raised its rating to Equal-Weight from Underweight, but their prior $230 target still was only raised to $300.
- BofA Securities has a Neutral rating but their price objective was raised to $325 from $315.
One big-bull call that was seen after earnings was BMO Capital reiterating its Outperform and raising their target to $355 from $336. They don’t think Amgen is overvalued.
CFRA was another bullish view before and after earnings. CFRA reiterated its Buy rating and the research firm has a $357 price target.
IS IT GARMIN OR GARMIN ELECTRA?
Garmin Ltd. (NYSE: GRMN) has managed to transform itself from what could have been an outright implosion a decade ago. And now it’s shares have exploded both in 2024 and since its May 1, 2024 post-earnings reaction. Garmin’s stock ended 2023 at $127.91 and they were at $144.47 ahead of earnings (April 30 close), for a year-to-date gain of 13% even ahead of the news. But then shares instantly rallied an immediate 13% to $163.42 after earnings, and the five-day consecutive winning streak has Garmin’s stock at $170.22 on last look. That’s a 33% gain year-to-date based on the current windfall in recent days.
Here are some of the post-earnings analyst calls:
- Barclays maintained an Equal-Weight rating but raised its target to $166 from $140.
- J.P. Morgan maintained its Neutral rating but raised its target to $175 from $155.
- BofA, despite calling resilient niche demand, cited macro risks and maintained a Neutral rating and $165 price objective. The firm had just raised its price objective from $120 a month earlier.
- CFRA reiterated its Hold rating and kept its target at $153.
- And Morningstar kept its Hold rating and its $132 fair value estimate static.
The most recent short interest showed about 2.87 million shares short, about 2.9 Days to Cover. That is also a high short interest relative to volume. Its short interest report two weeks earlier showed a similar 2.89 million shares in the short interest. That data is delayed but the post-earnings volume of 2.76 million shares (5-times normal) would not have cleared out all of the short sellers.
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Again, determining a true valuation in the future should be up to investors who are buying and selling those stocks. Analyst calls are just one tool for investors to use. One analyst will say “Buy!” the same day another analyst says “Sell!” That is the nature of investing.
Even with all of the screening and artificial intelligence that has been rolled out in recent years and months, the debate over a true value will likely never end.
