3 Despised Stocks With Room to Run

Analysts hold downbeat opinions on outperforming DE, RIG, and TXN

Jan 19, 2017 at 8:39 AM
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While many stocks have rallied to notable highs in the months since the presidential election in the U.S., some have attracted more analyst nods than others. Among names that have recently hit important milestones, but hold unusually bearish ratings from the brokerage bunch, are agricultural equipment maker Deere & Company (NYSE:DE), oil-and-gas stock Transocean LTD (NYSE:RIG), and chipmaker Texas Instruments Incorporated (NASDAQ:TXN). What's more, the overall sentiment setups on all three stocks suggest DE, RIG, and TXN could have more room to run.

Beginning with DE, the shares hit an all-time high of $106.75 earlier this month, and have since pulled back to support at the $104 level, which corresponds with the 20-day moving average. Nonetheless, two-thirds of analysts maintain a "hold" or "strong sell" opinion on the stock, closed last night at $105.24. What's more, the average 12-month price target of $101.75 sits at a discount to current levels. A round of upgrades and/or price-target hikes could send the stock on to higher highs. Sure enough, DE received a price-target hike to $106 from Deutsche Bank yesterday, and this morning Credit Suisse boosted its target to $132. 

There's plenty of pessimism elsewhere, as well. Though short interest fell by 29% during the two most recent reporting periods, it would still take more than eight sessions to cover the remaining short positions, based on DE's average pace of trading. And looking to the options pits, Deere & Company has a Schaeffer's put/call open interest ratio (SOIR) of 2.66 -- meaning put open interest nearly triples call open interest among options in the front three months' series. Moreover, this ratio sits higher than 78% of all readings from the past year. An unwinding of these seemingly bearish positions could give the stock an extra boost.

DE Daily Chart January 19

RIG tapped an annual high at $16.66 just over a month ago, and has since remained in the $14.50-$16 region, perched above the 20-day moving average. Though the shares shed 1.9% Wednesday to trade at $15.30, RIG could be gearing up for a big week ahead. According to Schaeffer's Senior Quantitative Analyst Rocky White, the stock has been among the top 25 S&P 500 Index (SPX) stocks in the week following a presidential inauguration, going back to 2000. In fact, over this time period, the stock has finished every post-inauguration week positive, averaging a 2.4% gain.

In spite of the security's recent run higher, 19 out of 22 analysts call RIG a "hold" or worse. And the 12-month consensus price target is well underfoot, at $12.60. Short interest on the stock remains elevated, too, accounting for 16.2% of RIG's total float. Meanwhile, the stock's SOIR of 1.65 ranks in the 86th percentile of its annual range.

Given the potential for an unwinding of bearish sentiment among brokerage firms and traders, RIG looks to be presenting an appealing opportunity for contrarian option bulls. After all, the stock has a Schaeffer's Volatility Index (SVI) of 46% -- in the low 10th percentile of its annual range -- suggesting near-term options are currently well-priced, from a volatility perspective. Plus, Transocean LTD's Schaeffer's Volatility Scorecard (SVS) sits at an elevated 74, indicating options have tended to underprice the equity's ability to make big moves over the past 12 months.

RIG Daily Chart January 19

Finally, TXN hit a 16-year high above $75 last Friday after a recent pullback found support at the $73 level and 40-day moving average. The shares have eased back slightly, finishing Wednesday at $74.38. Still, more than half of the brokerages tracking the stock give it a "hold" opinion or worse. And though short interest has been falling in recent months, it would still take nearly a week for short sellers to buy back their remaining positions.

TXN also has a SOIR of 1.66 -- in the 90th percentile of its annual range. And it looks like put buying has picked up in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has seen more than 2.5 puts bought to open for each call in the past 10 sessions. That leaves plenty of room for an unwinding to pessimism to keep TXN's rally alive. The equity could be ready to make another move soon, too, as Texas Instruments Incorporated is due to report earnings after the close next Tuesday.

TXN Daily Chart January 19

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