3 Downgrades You Might Want To Buy

 | Jul 13, 2021 06:02AM ET

h2 The Bar Has Been Lowered For These Strong Companies

In our never-ending quest to root out the most interesting, and the most lucrative, investment stories on the market we've run across three downgrades we think you might want to buy. These downgrades aren't typically the kind of thing we want to see happening in stocks that we like but think these will ultimately turn into buying opportunities. The number one trend in earnings since the pandemic even began has been an underestimation. The analysts underestimated the resilience of the US economy during the shutdown and have grossly underestimated the strength of the rebound in the time since. The only question for us is how much better than expected these companies will report when it's their turn to report second-quarter earnings.

h2 1. Big Lots Is The Most Underestimated Retail Stock On The Market/h2

Big Lots Inc (NYSE:BIG) has been hands down one of the biggest winners from the pandemic and yet it still gets no love from the analysts. The analysts have been only neutral on this stock since well before the pandemic began and now it looks like the sentiment is going to turn a little bit sourer. Bank of America put the stock on a list of underperform-rated small and mid-cap stocks with downside potential that we just don't see happening. In Bank of America’s view, the receding impact of stay-at-home trends and stimulus money is more than enough to offset strong management and the company’s nationwide rationalization.

Called Operation North Star, the rationalization is, in our opinion, the most important factor in this company's turnaround so we definitely disagree with this analyst opinion. The consensus price target of $61.50 assumes this stock is fairly valued but there is a caveat, the analyst activity has been very light over the past year and the most recent price targets skew towards $75 and the high end of the range. Valued at only 9X its earnings, we think this stock should be trading well over $100 and with a much higher valuation. Don't forget it is a high-quality dividend grower with a 1.9% yield and most other retailers are valued at nearly double the amount.