If you look at analyst price targets, you may find some undervalued stocks. However, often you will find a stock that looks like it has a lot of upside, but that is only because the price has fallen sharply and analysts have not yet issued their updated price targets (i.e. downgrades).
Three stocks that look like good buys today based on their analyst consensus price targets: PDD holdings (NASDAQ: PDD), Intel (NASDAQ: INTC)And MicroStrategy (NASDAQ: MSTR)But here are reasons why you might want to hold off on buying these stocks for a while, and why analysts could cut their price targets in the near future.
PDD holdings
If analysts’ forecasts are correct, you could be sitting on a potential 80% return if you buy shares in PDD Holdings today. The Chinese company owns Pinduoduo and Temu, one of the world’s most popular e-commerce sites.
While the company’s recent earnings have been strong, they fell short of Wall Street expectations, leading to a sell-off. Pinduoduo’s growth numbers were impressive for the quarter ending in June, with revenue up 86% year-over-year, but it still fell short of the lofty expectations analysts have for the stock. Missing earnings is just part of the reason you might want to temper your expectations for the stock.
Downgrades could come if the U.S. government decides to close a tariff loophole that many Chinese online retail sites have been exploiting, using it to offer dirt-cheap products to consumers. That could make the items on those sites more expensive and hurt PDD Holdings’ growth prospects.
Given Temu’s popularity, PDD could still be a good investment in the long run, but investors should not expect the stock price to rise dramatically in the near future.
Intel
Analysts have been slapping Intel with a flurry of downgrades after the tech company reported disappointing earnings in August. However, based on consensus, the implied upside for the stock is still over 50% at this point. But with the company in the midst of a restructuring and trying to grow its business while also turning its foundry business profitable, investors buying the stock today will have to take a leap of faith in the company’s management, as this is a very risky investment at this point.
Shares of Intel are down about 60% this year, and if it weren’t for such a deep sell-off, the implied upside based on price targets wouldn’t look as high as it does. There’s not a lot of optimism surrounding Intel these days. While it’s trading at multi-year lows, doubts about its ability to be profitable and compete in the chip market make it likely that the stock will see more downgrades. Given its volatility, investors may want to take a wait-and-see approach to the stock.
MicroStrategy
The one stock on this list that is most likely to hit its lofty price targets is MicroStrategy. But that’s not because the software company has incredible products or growth prospects. Its performance depends on how well it Bitcoin does. If the cryptocurrency rises, MicroStrategy’s stock could ride along. MicroStrategy is the largest corporate holder of Bitcoin and now calls itself “the world’s first Bitcoin development company.”
However, MicroStrategy’s exposure to Bitcoin also makes it an incredibly risky investment, and gains and losses on its crypto assets could have a significant impact on MicroStrategy’s bottom line. In the most recent period ended June 30, the company incurred a $180.1 million digital asset impairment charge — more than the $111.4 million in revenue it generated in the quarter.
Bitcoin has struggled in recent months and may not be the safe haven many investors thought it would be. Amid more challenging economic conditions, it could struggle and downgrades could be inevitable for crypto stocks like MicroStrategy, which are increasingly dependent on Bitcoin’s valuation.
Analysts currently expect MicroStrategy shares to rise an average of 60% over the next 12 months. But investors shouldn’t be surprised if the stock gets downgraded, especially if there’s a recession next year.
Should You Invest $1,000 in PDD Holdings Now?
Before buying PDD Holdings stock, you should consider the following:
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool recommends Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
Don’t Trust These Analyst Price Targets: More Downgrades Could Be Coming for These 3 Struggling Stocks was originally published by The Motley Fool
