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Watch these 3 stock upgrades for investment ideas

Chris Lau, Kapitall: Stock upgrades can mean higher volatility but not necessarily higher return. Answer? Add to your watch list.

When a stock gets an analyst upgrade, the price appreciation that follows could mean profit taking shortly afterwards. Despite the short term volatility, investors might get better performance by simply adding upgraded stocks to their watch list. Once the activity dies down, investors might find a better entry point.

Read more from Kapitall: Try these 7 rallying Indian stocks as country gears up for elections

In the 3D printing sector, Stratasys (SSYS) is slightly above $100. The stock is down 27 percent from its 52 week high reached at the start of 2014. Goldman Sachs took a liking to the company by starting coverage of Stratasys as a “buy.” 3D Systems (DDD) is even more attractive, since its shares are down 50 percent from its high.

In the software sector, VMware, Inc. (VMW) is a mere 8.6 percent from its yearly high. It was recently upgraded to Outperform from Crédit Lyonnais Securities Asia (“CLSA”). Demand for virtualization software is likely to remain strong, because it helps corporations reduce the cost of managing physical servers. When VMware reports on April 22, 2014, analysts expect the company to earn $0.79 per share.

F5 Networks (FFIV), whose shares are also slightly below a yearly high, was upgraded by Stifel to “buy.” Channel checks were cited by analysts as having improving trends. F5 and VMware have an ongoing collaboration agreement to jointly develop security and access control solutions for customers.

Valuation

3D printing companies remain expensive investing ideas, despite a pullback in their shares from yearly highs. F5 and VMware are more conservative investments, and are expected to deliver a strong quarter. The firms may even provide a strong guidance, which will mean more upside for investors.

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