A Rising Tide Lifts These 3 Stocks Getting Upgraded

Key Points

• Lululemon is the market's Most Upgraded retail and apparel stock, moving into the #6 position overall. 
• Target's fall from grace set up a buying opportunity that has yet to run its course. 
• Uber delivered a surprisingly wider margin, and analysts responded favorably, but a correction is due; wait for the pullback, then pull the trigger. 

Improving analysts’ sentiment is one surefire method to get a stock price moving, and Lululemon Athletica NASDAQ: LULU, Target NYSE: TGT, and Uber Technologies NYSE: UBER have that. These stocks are not only featured on Marketbeat’s list of Most Upgraded Stocks, but recent activity has caused them to rise in the rankings. Given the strength of sentiment for many AI-related names, that’s saying something. The takeaway for today is to follow the money. A rising tide of analysts' sentiment supported by business growth and profits will continue to attract money to these markets and lift their stocks to new highs. 

Lululemon Moves Into the Top Ten Most Upgraded Stocks

Lululemon has been a favorite of analysts for years but recently moved upward into the top ten most upgraded stocks ahead of the Q4 earnings report. Analysts expect revenue growth to continue slowing but remain solid at 15%, with the margin holding firm, and outperformance is likely. The company beat consensus in the four preceding quarters, and guidance for Q4 was cautious. 

Marketbeat.com tracks thirty-two analysts with current ratings; twenty-eight have been revised since the last earnings report. They pegged the stock at Moderate Buy and saw it advancing 8% at the consensus midpoint. The midpoint is rising compared to the previous year and may continue to lead the market following the report. 

Possible areas of strength include men’s apparel and footwear. The company has been expanding both business areas while expanding margin and delivering substantial profits for shareholders. Among the risks is the high valuation. At 35X earnings, the stock is more than double that of apparel leader Ralph Lauren, although it is pricing in double the growth. 

Target is Back in the Sights: Aims for Higher Share Prices

Target’s fall from grace is over, and the stock is a rising star on track to complete a reversal in 2024. The Q4 results weren’t excellent, but they revealed that the bottom is in for the business, and improvements are taking effect. Analysts liked what they saw and started raising their price targets, extending a trend that began in January. 

Twenty-five of the Twenty-seven analysts tracked by Marketbeat issued a revision since the first of the year, eighteen since the Q4 results were released, and all are bullish. The result is that sentiment firmed to Moderate Buy from Hold, and the consensus price target surged 15% overnight, lifting the stock into 9th position on the Most Upgraded Stocks list. The consensus estimate implies a 5% upside from $17, 8and the freshest targets are leading the consensus higher.

Value and yield are part of the Target turnaround story. Target’s 2.55% yield is as reliable as ever and a value compared to Walmart. Walmart trades close to 25X earnings and yields less than 1.5%, whereas Target trades at only 18X earnings.

Uber Delivers for Investors

Uber started delivering for investors in 2023 and the rally is still going strong. The stock price is up 200% on analysts' upgrades in the last eighteen months and may continue to rise following a healthy correction. The analysts favor the stock, but the market outran consensus and set it up for a price correction that could come at any time. 

The Q4 report is notable for several reasons, including accelerating growth, surprisingly wider adjusted margins, profits versus losses, and improving engagement, so the correction may not be deep or last long. The post-release analyst activity is favorable, including several price target increases that lifted Uber to the #10 spot on the Most Upgraded Stocks list. 

Valuation is a concern for this market, but it is pricing in significant growth. The 65X it trades for this year falls to 40X next year, and analysts may underestimate the company's momentum. Details of the last report include a growing customer base and number of trips per customer that provided leverage for the top and bottom line that should continue this year.