Hedge funds are bullish on these 6 stocks trading below price targets

By Mary-Lynn Cesar for Kapitall.

Earlier this month, four major firms raised their year-end price targets for the S&P 500. Deutsche Bank's chief US equity strategist David Bianco lifted his target from 1,850 to 2,050; Tobias Levkovich, top stock strategist at  Citi, upped his call to 2,100 from 2,050; and Goldman Sachs changed its 3-month target to 2,050 from 2,000. Even Wells Fargo Securities senior analyst Gina Martin Adams, who USA Today reports had the lowest  forecast on Wall Street, revised her price target upwards from 1,850 to 2,100. 

Bianco and Adams's bullish shift is noteworthy because both were among the most bearish strategists  around. Their changes  comes at the same time the S&P 500 continues on a tear: in fact, the benchmark index closed at its  34th record high on Thursday as the Federal Reserve pledged to keep interest rates low for a " considerable time."

Yet, as  Marketwatch points out, contrarian investors may view the bulls-to-bears transformation as a troubling sign. In their eyes, if nearly everyone believes in the market's upside potential, it increases the likelihood that the market will fall. Credit Suisse's latest S&P 500 forecast expressed a similar sentiment, raising the year-end target for 2014 but predicting a market correction in the second half of 2015 thanks to higher interest rates and a peak in profit margins. 

The changing S&P 500 price targets inspired our following screen. We began with a group of dividend stocks—with a yield of 2% or greater— trading at a considerable discount to their price target. Analysts come up with a wide range of prices for stocks, so we used the most pessimistic price target as a proxy for fair value  to see which stocks are potentially undervalued by a sizable amount.

After that, we screened for stocks with a  significant increase in net institutional purchases in the current quarter. When hedge fund managers and other institutional investors buy lots of shares of a stock in a given period, it suggests that they are bullish towards the stock. 

We were left with six stocks on our list. Do you think these stocks will pass their price targets this year? Use this list as a starting point for your own analysis, and let us know what you think in the comments.

Click on the interactive chart to view data over time. 

1. Baytex Energy Corp. ( BTE): Engages in the acquisition, exploration, development, and production of petroleum and natural gas in the Western Canadian Sedimentary Basin and the United States. Market cap at $6.36B, most recent closing price at $39.40.

Dividend yield at 6.61%.

Of the 9 analysts that have set a target price on the stock, the lowest price target stands at $51.16. This implies a potential upside of 29.85% from current levels around $39.40.

Net institutional purchases in the current quarter at 18.8M shares, which represents about 11.46% of the company's float of 164.10M shares. The two top holders of the stock are Royal Bank of Canada with 7 million shares and Franklin Resources, Inc. with 6.4 million shares. 

 

2. E-House ( EJ): Operates as a real estate services company in China. Market cap at $1.30B, most recent closing price at $9.45.

Dividend yield at 2.04%.

Of the 6 analysts that have set a target price on the stock, the lowest price target stands at $14.10. This implies a potential upside of 49.2% from current levels around $9.45.

Net institutional purchases in the current quarter at 4.8M shares, which represents about 7.21% of the company's float of 66.61M shares. The two top holders of the stock are Kylin Management LLC with 7.4 million shares and JP Morgan Chase & Company with 5.5 million shares. 

 

3. Energy XXI ( EXXI): Engages in the acquisition, exploration, development, and operation of oil and natural gas properties onshore in Louisiana and Texas and offshore in the Gulf of Mexico. Market cap at $1.27B, most recent closing price at $13.94.

Dividend yield at 3.29%.

Of the 14 analysts that have set a target price on the stock, the lowest price target stands at $19.00. This implies a potential upside of 36.30% from current levels around $13.94.

Net institutional purchases in the current quarter at 15.6M shares, which represents about 19.81% of the company's float of 78.73M shares. The two top holders of the stock are Mount Kellett Capital Management LP with 5.9 million shares and Vanguard Group, Inc. (The) with 5.5 million shares.

 

4. Flowers Foods, Inc. ( FLO): Produces and markets bakery products in the United States. Market cap at $3.85B, most recent closing price at $18.75.

Dividend yield at 2.55%.

Of the 7 analysts that have set a target price on the stock, the lowest price target stands at $23. This implies a potential upside of 22.67% from current levels around $18.75.

Net institutional purchases in the current quarter at 10.8M shares, which represents about 5.89% of the company's float of 183.26M shares. The two top holders of the stock are Price (T. Rowe) Associates Inc with 19.3 million shares and Vanguard Group, Inc. (The) with 12.5 million shares.

 

5. Navios Maritime Holdings Inc. ( NM): Operates as a seaborne shipping and logistics company in Greece. Market cap at $730.91M, most recent closing price at $7.43.

Dividend yield at 3.00%.

Of the 5 analysts that have set a target price on the stock, the lowest price target stands at $11.75. This implies a potential upside of 58.14% from current levels around $7.43.

Net institutional purchases in the current quarter at 4.1M shares, which represents about 5.24% of the company's float of 78.24M shares. The two top holders of the stock are FMR, LLC with 4.7 million shares and Regiment Capital Management, LLC with 4.5 millions shares.

 

6. Sinclair Broadcast Group, Inc. ( SBGI): Provides certain programming, operating, or sales services to television stations in the United States. Market cap at $2.57B, most recent closing price at $27.10.

Dividend yield at 2.19%.

Of the 5 analysts that have set a target price on the stock, the lowest price target stands at $34.00. This implies a potential upside of 25.46% from current levels around $27.10.

Net institutional purchases in the current quarter at 11.5M shares, which represents about 17.62% of the company's float of 65.27M shares. The two top holders of the stock are FMR, LLC with 10.7 millions ahres and Manning & Napier Advisors Inc. with 7.2 million shares.

 

 

(List compiled by Mary-Lynn Cesar. Institutional data sourced from Fidelity. Monthly return data sourced from Zacks Investment Research. Price target data sourced from Yahoo! Finance. All other data sourced from finviz.)

 

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