Looking at analyst price targets, you might find some undervalued stocks. However, you'll often find a stock that looks like it has a lot of upside, but only because its price has fallen sharply and analysts haven't put through their updated price targets (i.e., downgrades) for it yet.
Three stocks that look like they might be great buys today based on their consensus analyst price targets include PDD Holdings (NASDAQ: PDD), Intel (NASDAQ: INTC), and MicroStrategy (NASDAQ: MSTR). But here's why you might want to hold off on buying these stocks right now and why analysts could downgrade their price targets for them in the near future.
PDD Holdings
If analyst projections prove accurate, you could be sitting on a potential 80% return if you buy shares of PDD Holdings today. The Chinese-based company owns Pinduoduo and Temu, one of the hottest e-commerce sites in the world.
While the company's recent earnings numbers were strong, they failed to meet Wall Street's expectations, leading to a sell-off. Pinduoduo's growth rate was impressive for the quarter ending in June, with sales up 86% year over year, but it still failed to meet the high expectations analysts have for the stock. An earnings miss is just part of the reason you may want to temper your expectations for the stock.
Downgrades could be coming if the U.S. government decides to close a tariff loophole that many Chinese online retail sites have been taking advantage of, using it to offer dirt cheap products to consumers. That could make items more expensive on those sites and hurt the growth prospects of PDD Holdings.
Given Temu's popularity, PDD could still make for a good investment in the long run, but investors shouldn't assume the stock is going to skyrocket in the near future.
Intel
Analyst downgrades were pouring in for Intel after the tech company reported disappointing earnings numbers in August. Based on the consensus, though, the implied upside for the stock is still more than 50% right now. But with the company in the midst of restructuring and working to try to grow its business while also making its foundry operations profitable, investors who buy the stock today will need to take a leap of faith in the company's management as this is a highly risky investment to own right now.
Shares of Intel are down around 60% this year, and if not for such a deep sell-off, the implied upside based on price targets wouldn't look nearly as high as it does. There's not much optimism around Intel these days. Even though it's trading at multiyear lows, doubts about its ability to be profitable and compete in the chip market make it probable that there will be more downgrades to come for the stock. Given its volatility, investors may be better off taking a wait-and-see approach with the stock.
MicroStrategy
The one stock on this list that may be the most likely to hit its lofty price targets is MicroStrategy. But that's not because the software company has incredible products or growth prospects. Its performance links back to how well Bitcoin does. If the cryptocurrency rises, MicroStrategy's stock could go along for the ride. MicroStrategy is the largest corporate holder of Bitcoin and now refers to itself as "the world's first Bitcoin development company."
However, MicroStrategy's exposure to Bitcoin also makes it an incredibly risky investment, and gains and losses on its crypto assets can have a significant impact on MicroStrategy's earnings numbers. In the most recent period, which ended on June 30, the company incurred digital asset impairment losses of $180.1 million -- more than the $111.4 million in revenue it generated during the quarter.
Bitcoin has been struggling in recent months, and it may not be the safe haven many investors assumed it might be. Amid more challenging economic conditions, it could struggle and downgrades could be inevitable for crypto stocks like MicroStrategy, which are increasingly dependent on Bitcoin's valuation.
Right now, analysts expect MicroStrategy stock to rise by an average of around 60% over the next 12 months. But investors shouldn't be surprised to see downgrades coming for the stock, especially if there's a recession next year.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool recommends Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
