- Home Depot gets downgraded, but analysts rate it a Buy with a double-digit upside.
- Zscaler hit bottom and could gain 50% upon reversal.
- Devon Energy is a value at these levels.
Marketbeat’s stock screening tools are a great place to find interesting stock plays, including the screen for Most Downgrades Stocks. Stocks with downgrades can signal many things, and one of them is when to buy. That’s right. A high-flying stock or stock with high-flying expectations will often return to more reasonable levels with a downgrade or 2.
If the resulting trend leaves the analysts' community bullish, but with a slightly lessened expectation for upside, you have a candidate for a winning investment. When you filter those candidates for market leaders, growth industries or under-valued dividend payers, the odds of finding a great investment increase exponentially.
1. Home Depot
Home Depot (NYSE:HD) had a tepid quarter relative to expectations, resulting in a round of price target reductions. The takeaway from the report is that business will be flattish this year, which is saying a lot given the growth of the last few. That aside, the 29 analysts covering HD continue to rate the stock a Buy and see an upside for investors.
The consensus target of $331 is about 18% above the current price action, and even the low price target is above the action, so there is a floor in sight. As for the trend, the analysts' target has been steady since the post-release wave of downgrades that landed this stock on the Most Downgraded list.
Home Depot isn’t a value compared to competitor Lowe’s (NYSE:LOW), but it pays more in dividends. The stock yields double Lowe’s payout, which makes it a compelling buy for income investors. This could be why the institutions have been adding to their holdings and have their company ownership near 70%.
Shares of Home Depot failed to break out of their range following the Q4 report, but the range is intact. The market is drifting lower but will likely find support in the $260 to $270 range. Longer term, consolidation at these levels will get the stock back to its trend by next year.
2. ZScaler
Shares of Zscaler (NASDAQ:ZS) have been pressured by fear of slowing growth, which was proved false by results across the cybersecurity industry. The stock is bottoming and has an attractive upside potential, although the analysts are weighing on the action now. The stock received 16 downgrades and price target reductions in the last 90 days, with the sentiment and consensus target moving lower.
The takeaway is that sentiment is pegged at a Moderate Buy with a low price target that implies at least a 5% upside for the stock. The consensus target is closer to 50% above the price action and consistent with the growth outlook. Zscaler is slowing but to still-high double-digit levels that could reaccelerate with economic recovery. The overreaching theme within results across the tech industry is that tech adoption is ongoing, and large corporations are leading the charge. The more we lean on tech, the more we will be forced to lead on cybersecurity.
3. Devon Energy
Devon Energy (NYSE:DVN) garnered a spot on the Most Downgraded list primarily for oil prices. Lower oil prices mean less earnings, but oil prices are bottoming. The price of oil shows support at the $70 level that could keep it at current levels if it does not move higher in the 2nd half of the year. Regarding Devon analysts, they are lowering their expectations but rate the stock a Buy with at least 6% of upside, and closer to 50% is on the table. The next earnings report is due in late May. The analysts are expecting a pullback in revenue that may not come.
