While many investors focus on value measurements, such as price-to-earnings or price-to-sales, to find underpriced stocks, an even better method is to look at their upside potential based on analyst price targets. Wall Street analysts are responsible for coverage on a select group of stocks based on industry and market size.
These analysts meet with management and other stakeholders to determine a company’s current and future value based on its financials and growth potential. They use this information to generate earnings estimates and target prices that help them form their overall ratings. So, a price target is what analysts think the stock is worth per share.
If you take the average of analyst price targets, you can estimate what price a stock could reach. So, if a stock is trading below its average target price, there is a solid chance it will increase its price. But If a stock is trading more than 50% below its average price target, the company has a very high upside, which is why I recommend investors check out stocks such as MKS Instruments, Inc. (MKSI), Medifast Inc. (MED), and Amarin Corp. PLC ADR (AMRN).
MKS Instruments, Inc. (MKSI)
MKSI is engaged in providing instruments, subsystems, and process control systems used to measure, monitor, deliver, and control the parameters of manufacturing processes. The company’s products and systems are required to manufacture flat panel displays, medical devices, and electronic materials.
The company is benefiting from growth in the semiconductor market and a recovery in advanced markets. MKSI has solid growth potential in the semiconductor market due to increased demand for advanced memory and logic chips. Plus, strong demand for power solutions has also been a growth driver in the chip end market.
The company’s advanced market is benefiting from strong demand for advanced electronics manufacturing applications and a pickup in demand from various industrial applications. The company’s solutions are also being used to fight COVID. Its valves and pressure measurement solutions are being used to sterilize personal protective equipment.
Plus, the rapid adoption of 5G has created a massive growth opportunity for the company as the implementation of 5G will require upgraded wireless infrastructure and new mobile devices. This bodes well for MSKI’s semiconductor and laser diode testing businesses. The company has an overall grade of B, which translates into a Buy rating in our POWR Ratings system.
MKSI has a Value Grade of B, which makes sense with a forward P/E of 12.06. The firm also has a Momentum Grade of B as the stock has shown positive long-term performance, up 34% over the past year. We also provide Growth, Stability, Sentiment, and Quality Grades for MKSI, which you can find here. In addition, the stock has an upside potential of 56% based on its average analyst price target.
MKSI is ranked #32 in the B-rated Industrial – Equipment industry. For more top stocks in this industry, click here.
Medifast Inc. (MED)
MED is a US-based company that produces, distributes, and sells weight loss, weight management, and healthy living products. The company is known for its leading health and wellness community, OPTAVIA. The firm generates its revenue from point-of-sale transactions executed over an e-commerce platform.
The firm is seeing strength in OPTAVIA, with its average revenue per active earning OPTAVIA coach increasing 13.9% year-over-year. This is due to an increase in consumer interest in health and wellness. OPTAVIA follows a holistic approach that focuses on weight, eating, hydration, motion, sleep, mind, and surroundings.
The OPTAVIA product line is sold through a community of independent coaches who provide their clients support and guidance. The increasing interest in health has helped the company draw new clients. This led management to raise its 2021 guidance. MED has also undertaken several measures to drive growth, including speeding up its long-term supply-chain efforts.
Plus, the company is expanding its distribution network through expansions in existing facilities and technological investments such as a new technology center in Utah and the OPTAVIA app, which helps enhance the Clients’ experience. MED has an overall grade of B and a Buy rating in our POWR Ratings system. The company has a Sentiment Grade of B as it is well-liked by Analysts.
MED has an upside potential of 77% based on an aggregate of analyst price targets. The company also has a Quality Grade of A due to a strong balance sheet. As of the most recent quarter, the firm had $197 million in cash and only $16 million in long-term debt. For the rest of MED’s grades, including Growth, Value, Momentum, and Stability, click here.
MED is ranked #6 in the B-rated Medical – Consumer Goods industry. For more top stocks in this highly rated industry, click here.
Amarin Corp. PLC ADR (AMRN)
AMRN is a biopharmaceutical company focused on the commercialization and development of therapeutics to improve cardiovascular health. Its lead product is Vascepa, approved in the United States as an adjunct to diet for treating severe hypertriglyceridemia or elevated triglyceride levels.
Sales of Vascepa have registered solid year-over-year growth over the last four years. In fact, revenue grew 40% last year. While COVID and poor weather impacted sales in the first quarter of this year, they recovered in the second quarter. That recovery is expected to continue for the rest of the year. Its recent label expansion for cardiovascular indication also bodes well.
AMRN has expanded its sales force and initiated promotional programs to generate awareness for the expanded label. The firm increased its sales team to 800 last year. It has also started promoting the expanded label among physicians and started promotional activities and direct-to-consumer programs to raise awareness.
AMRN is also engaged in improving payer coverage for the drug. In addition, it has filed a patent infringement lawsuit against Hikma to prevent it from marketing a generic equivalent, along with similar suits against other Vascepa generic providers. The company has an overall grade of B, translating into a Buy rating in our POWR Ratings system.
AMRN has a Value Grade of B, which isn’t surprising as both its price-to-sales and price-to-book ratios are well below the industry averages. The company also has a Sentiment Grade of B, which aligns with an upside potential of 123% based on its average analyst price target. To access all of AMRN’s grades (Growth, Momentum, Stability, and Quality), click here.
AMRN is ranked #31 in the Biotech industry. For more top-ranked stocks in this industry, make sure to visit this link.
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This article was written by David Cohne, Chief Value Strategist for StockNews.com. David has helped investors find the most profitable stocks for over 20 years.
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MKSI shares were trading at $145.16 per share on Friday morning, down $0.24 (-0.17%). Year-to-date, MKSI has declined -3.13%, versus a 18.42% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More...
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