Investors typically react positively to broker upgrades, and why shouldn’t they?
After all, a target price upgrade shows that an analyst following a particular company has found something that makes them think the company should be worth more.
That is what has happened with Catapult Group International Ltd (ASX: CAT), ResMed Inc. (CHESS) (ASX: RMD) and Senetas Corporation Limited (ASX: SEN) this morning, with all three earning broker upgrades. But does that automatically make them a buy?
Bell Potter lifted its price target on Catapult Group by 18% to $3.85 today, while Morgans recently increased its own price target by 21% to $4.29. Coincidentally, the shares hit an all-time high of that amount today, which represented an 8.9% lift on yesterday’s closing price.
Catapult Group recently announced a capital raising and two strategic acquisitions that should enhance its product offering to customers. Catapult Group is a great business and it seems there is still plenty of room for the company to continue growing, but investors do need to be mindful of how much they’re paying for the shares. Investors who are committed to buying may want to start off with a smaller target allocation in case the shares do pull back from here.
ResMed Inc. is a company that manufactures and distributes products for the treatment of sleep-related breathing disorders, including sleep apnea. The shares are currently trading for $8.76, up 2% on yesterday’s closing price.
Credit Suisse upgraded its own price target this morning to $9.15 per share – a narrow 4.5% above today’s price. ResMed is a quality business but, before investors buy, they should also take a look at rivals Somnomed Limited (ASX: SOM) and Fisher & Paykel Healthcare Corp Ltd (ASX: FPH).
I find SomnoMed particularly interesting. Operating in the same industry, it is a smaller company than ResMed Inc. but produces a cheaper and less invasive product. While its product is also capable of monitoring patient compliance with treatment prescriptions, SomnoMed is a company well worth checking out and may have greater upside potential than ResMed.
After slipping to a 52-week low last week, Senetas shares have been on fire following an earnings update from the group. The shares have soared 49% since hitting that low and are trading 8.3% higher today alone at 13 cents. The earnings upgrade is also likely what led Bell Potter to raise its price target by 6.7% to 16 cents.
Indeed, the earnings guidance provided by the company is certainly better than what the market had expected, and the shares could be worth a closer look today as a result.
However, investors need to keep in mind that the company is still in the early stages of its development and could well experience setbacks in the coming months and years. This is by no means a risk-free bet.
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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.