David Sterman
Wall Street analysts aren't known for their boldness. They tend to analyze and value companies on the basis of what lies ahead in the next month or quarter, refusing to predict where a company -- and its stock -- may be headed in a year or two. Though they stick a "buy" rating on most stocks they cover, their target prices are often only modestly above the current price, as they see shares through the prism of this short-term myopic view. There's not a lot of upside if there are only a few weeks or months to reach their price target.

That's why I stand up and take note when price targets are far above or far below the current stock price. These are usually issued by analysts that tend to look further down the road -- to where a company's profit picture and business trends will be a year or two from now. And this is the kind of longer-term view I believe investors should have if they don't want to miss out on making quick gains that might only be disguised by short-term hiccups.

Here's a look at three stocks with price targets handily above current levels:

1. Rite Aid (NYSE: RAD)
Current price: $1.18
Guggenheim price target: $2

This debt-laden drug store chain sprang to life this past winter, as shares surged from under $1 in October 2011 to above $2 by March 2012. Buyout rumors led to a massive short squeeze, but as a buyer failed to emerge, shares quickly gave up almost all of those gains during the following months. Short sellers haven't been deterred: They still hold 41 million shares short.

Yet if analysts at Guggenheim are correct, then we may be looking at another short squeeze. They say a coming wave of generic drug launches, which will reach a crescendo in the first half of 2013, could drive a lot of traffic to Rite-Aid. Generic drugs cut both ways: Their lower prices can cause a drop in revenue at the drugstore counter, but act as a lure for higher store traffic, so consumers end up buying more non-drug items.

This trend was in evidence for Rite-Aid in September, according to company data, but on balance, should be a benefit for the bottom line. These Guggenheim analysts say Rite-Aid's third-quarter EBITDA will likely rise 12% from a year ago to $247 million, higher than most analysts are anticipating.


David Sterman

David Sterman has worked as an investment analyst for nearly two decades. He is currently an analyst for StreetAuthority.com