3 Stocks Analysts Are Overlooking

Analysts and traders are overly bearish on these three outperforming securities

Nov 18, 2015 at 11:09 AM
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Analysts show their love by handing out "buy" ratings and initiating bullish price targets. They don't get it right every time, however, and sometimes they're late to the party. Below are three stocks that have received lukewarm or worse attention from analysts and traders, even though they are outperforming the general market. Taken from a contrarian perspective, this combination of technical outperformance and general skepticism make these securities ripe for upgrades -- and further growth on the charts.

McDonald's Corporation (NYSE:MCD) has had an encouraging year so far, gaining 19.1% on the charts and hitting an all-time high of $114.99 last week, after announcing it won't pursue a real estate investment trust (REIT). The burger giant, last seen trading up 0.6% at $111.56, has also outperformed the S&P 500 Index (SPX) by more than 10 percentage points over the last three months. Still, fewer than half of the brokerage firms covering McDonald's Corporation rate it a "buy" or better, and the average 12-month price target of $117.57 is within a chip-shot of MCD's current price.

Movement in the options pits hasn't been too optimistic, either, as the security holds a Schaeffer's put/call open interest ratio (SOIR) of 0.8 -- a mere 4 percentage points shy of an annual high, suggesting short-term option traders are more put-skewed than usual. Off the charts, McDonald's has been working hard to improve its business model this year, with
Main Street going gaga over all-day breakfast. The company also recently announced that it will unveil a new value menu early next year, which is focused on encouraging consumers to buy more of food and stop thinking of it as "cheap." Moreover, MCD has historically performed well in the month of November, and additional upgrades and/or price-target hikes from analysts could help sway sentiment, sending the shares to new highs before the year is out.

Over the last three months, offshore drilling issue 
McDermott International (NYSE:MDR) has outperformed the SPX by a hefty 26.2 percentage points, and the company recently reported third-quarter earnings that beat expectations. The stock has added 71.8% year-to-date, and was last seen trading 3.2% higher at $5.01. But analysts have been lukewarm at best, as eight out of 12 brokerage firms following MDR rate it a "hold" or worse. 

What's more, McDermott holds a SOIR of 1.37, in the 70th percentile of its annual range, suggesting near-term option players are more put-heavy than usual. Plus, 16.7% of the stock's total float is
sold short, accounting for more than 12 days of trading, at MDR's average daily volumes -- plenty of fuel to send the shares higher, should bears abandon their positions. 

Carnival Corp (NYSE:CCL)
 is another security that analysts seem to be overlooking. The cruise line, last seen up 0.2% at $50.03 -- despite recent headwinds for travel stocks -- has added 10.8% so far this year, compared to the SPX hovering around its year-to-date breakeven. Like many of its sector peers, Carnival Corp has declined slightly since last Friday's terrorist attacks in Paris, but the shares aren't far off of their nine-year high of $54.59, notched at the end of October. CCL also recently announced a $4 billion joint venture with two Chinese firms to launch a cruise line in the fast-growing Chinese market, which Euromonitor expects to nearly double in sales, from $6.8 billion in 2013 to $11.5 billion in 2018.

In spite of this growth potential, half of the brokerage firms following Carnival
give it a tepid "hold" rating. And CCL has a SOIR of 0.94 -- higher than 73% of readings from the past year, indicating a stronger-than-usual preference for puts among near-term options traders. Should CCL resume its quest for new highs, a shift in sentiment could lure more buyers -- and the recent travel dip could prove to be an opportune entry point for longs.


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