Years ago, Wall Street analysts could differentiate stocks they favored against stocks with little appeal. A "buy" rating was all a client needed to know.
But during the 1960s and 1970s, clients began to demand more information. They didn't want to only know what to buy, but how much of a gain they could expect from the investment. Pretty soon, an increasing number of analysts began issuing price targets, and soon enough, the practice became the norm.
Still, not everyone focuses on these targets. I tend to quibble with their short-term nature, and am less concerned about where a stock could trade in the next three to six months, but instead the next two to three years. Other detractors suggest a quantified target, which is usually a multiple applied to a particular metric, such as earnings per share or EBITDA. This is too formulaic and doesn't allow for qualitative factors such as the relative newness and competitiveness of a company's product lines.
Having said that, it's still worthwhile to consider price targets when they are far above current trading levels. Even if the targets are imprecise, it's clear analysts are calling attention to what they believe is a sharply undervalued stock.
Here are six stocks with price targets at least 50% higher than the current price.
1. U.S. Airways (NYSE: LCC)
Current price: $10.79
Sterne Agee target: $21
These analysts note that the airline has done a solid job of streamlining operations, which has helped boost cash. More to the point, they say an increasingly likely bid for AMR, parent of American Airlines, will yield significant gains.
2. Ford Motor (NYSE: F)
Current price: $9
various targets: $13-$15