Growth stocks have seen their shares fall quite a bit recently due to lofty valuations and the rise in treasury yields. That’s why investors should consider adding value stocks to their portfolio. But instead of relying on traditional valuation measures, investors should consider stocks trading well below their upside potential such as MKS Instruments , Inc. (NASDAQ:MKSI), Medifast Inc. (NYSE:MED), and Amarin Corp. PLC ADR (NASDAQ:AMRN).While many investors focus on value measurements, such as price-to-earnings or price-to-sales, to find underpriced stocks, an even better method is to look at their upside potential based on analyst price targets. Wall Street analysts are responsible for coverage on a select group of stocks based on industry and market size.
These analysts meet with management and other stakeholders to determine a company's current and future value based on its financials and growth potential. They use this information to generate earnings estimates and target prices that help them form their overall ratings. So, a price target is what analysts think the stock is worth per share.
If you take the average of analyst price targets, you can estimate what price a stock could reach. So, if a stock is trading below its average target price, there is a solid chance it will increase its price. But If a stock is trading more than 50% below its average price target, the company has a very high upside, which is why I recommend investors check out stocks such as MKS Instruments, Inc. (MKSI), Medifast Inc. (MED), and Amarin Corp. PLC ADR (AMRN).