Salesforce’s share price among those that could beat the market in October

Salesforce’s [CRM] share price bucked the trend last week - delivering double digit gains when most stocks faltered. Having upgraded its outlook for the full year, the software as a service company was a rare shimmer of hope in an otherwise unsettling week for the markets.

The start of last week saw the biggest sell-off the markets had seen for the past four months, with some pundits asking if Evergrande was the next Lehman Brothers as the debt-laden property company missed an interest payment deadline.  By midweek, those fears had turned to the possibility that the Fed would start paring down bond purchases starting November, while rate increases could start next year.

That doesn’t mean analysts don’t think there’s any growth left in the market. We look at three stocks - including Salesforce - that were either upgraded or had bullish calls reiterated last week that could have at least 20% upside potential on their share prices.

 

Piper Sandler bats for Salesforce

Salesforce’s share price [CRM] jumped 12.9% last week after raising its fiscal 2022 outlook, easily outpacing the Nasdaq’s 3.5% gain in the same period. Piper Sandler analysts upgraded the stock Friday, after coming away impressed from discussions with the new leadership at the SAAS giant.

“We are upgrading CRM to ‘overweight’ from ‘neutral’ based on in-person conversations with new leadership over the last two days that give us confidence we could see a multi-year period of multiple and profit expansion tied to operating discipline and organic investments that can sustain growth.”

“We are upgrading CRM to ‘overweight’ from ‘neutral’ based on in-person conversations with new leadership over the last two days that give us confidence we could see a multi-year period of multiple and profit expansion tied to operating discipline and organic investments that can sustain growth” - Piper Sandler analysts

 

Piper Sandler upgraded their price target on Salesforce’s share price from $280 to $365, which would see a 28% upside on Friday’s close. Wells Fargo also upgraded its price target from $325 to $340.

 

Citi backs GM share price

GM’s [GM] share price took a bath during last Monday’s selloff, dropping 4.8% at one point during intraday trading. However, the stock managed to end the week up 1.8%, indicating that investors may have been a bit too hasty in hitting the sell button.

On Friday, Citi analyst Itay Michaeli reiterated his ‘buy’ call on GM’s share price. Michaeli has an official price target of $90 a share on GM, but thinks the stock has the potential to hit $100 - a near 100% upside on Friday’s close. The automobile manufacturer’s upcoming investor day could be a key catalyst.

“We continue to regard the upcoming Investor Day as a potential significant positive catalyst for the stock, as we see a number of paths for GM to address key debates and unlock trapped value,” wrote Michaeli in a note on Friday.

“We continue to regard the upcoming Investor Day as a potential significant positive catalyst for the stock, as we see a number of paths for GM to address key debates and unlock trapped value” - Citi analyst Itay Michaeli

 

Michaeli isn’t the only analyst bullish on GM’s potential. According to Refinitiv data, GM has an average price target of $70.15 - a 34.3% upside on Friday’s close. Of the 34 analysts offering recommendations, eight rate the stock a ‘buy’, 14 ‘outperform’ and only one rates it a ‘hold’.

 

Dell share at bargain price

Another stock CitiGroup reiterated its ‘buy’ rating on last week was Dell [DELL]. Having suitably impressed analysts, Dell was rewarded with Citi saying it was its ‘top stock pick’ and cementing a place on CitiGroup’s US Focus list with a $130 price target - a 26% upside on Friday’s $103.88 close.

The Citi analysts also noted that Dell could be a bargain compared to its peers.

“On core metrics, we view Dell is trading at ~20-25% discount to its peers,” the CitiGroup analysts said.

 

An uncertain market

The Evergrande fiasco saw around $6.7bn wiped off the value of Hong Kong’s four top property giants last Monday. Yet the fallout wasn’t limited to Chinese markets. Global indices fell as investors sold off equities, including those with no clear link to China.

Looking wider, a degree of pessimism entered the markets last week. Beside Evergrande the other big story was the Federal Reserve signalling that it will move towards tightening the monetary policies that have held interest rates at historic lows. Other central banks have already raised the cost of borrowing. Arguably, this is the biggest long-term hurdle facing the US and European stock markets right now.

“To be clear, there remains a strong chance that U.S. equities record new highs as recession risk remains low. But the upward ride will likely be bumpier” - Gavekal’s Tan Kai Xian

 

The counter argument is that this was a selloff triggered by a negative headline, with the possibility that some will be buying back in the coming weeks.

“To be clear, there remains a strong chance that U.S. equities record new highs as recession risk remains low,” Gavekal’s Tan Kai Xian told Barron’s. “But the upward ride will likely be bumpier.”

Barron’s also points to Bank of America Securities data that shows $28.6 billion was pulled out of US markets last week, the most since 2018. However, it also points out that eight BofA clients think there will be a ‘melt up’ for every two that think there will be a ‘melt down’. So while it seems the expectation is still for more growth, the path ahead looks a little less clear as the era of cheap money comes to an end.