These 3 Stocks Just Got Upgraded—and Could Keep Climbing

Key Points

• An analyst upgrade can signal a turnaround in a company's fundamentals, a beneficial external environment, or other types of catalysts that can drive share price growth.
• Three companies with notable recent upgrades include AMH, Corteva, and Knight-Swift Transportation.
• These stocks represent very different industries with unique sets of benefits and risks, potentially providing ready-made diversification for investors.

Investors watch Wall Street for signals about potential movement in stocks, and an upgrade from analysts is one important marker of shifting fundamentals. Analyst upgrades come in response to a variety of internal and external factors, and an upgrade does not necessarily mean that a company is likely to also have upside in its near future—nor even that it may be a strong choice for many investors at all. However, in a choppy market, investors may assign more value to analyst ratings overall.

Below are three stocks that have recently seen ratings upgrades that could still have room to run for investors just getting on board. They range across sectors, market capitalizations, and along other lines to provide built-in diversification for investors seeking inspiration for their portfolios.

Strong Rental Property Portfolio Positions AMH to Grow Through Market Turbulence

American Homes 4 Rent NYSE: AMH, known as AMH, is a real estate investment trust (REIT) that buys, develops, and manages single-family homes for rent across multiple major markets in the United States. The company's unique focus on rental properties gives it a key advantage in the current market, in which homeownership is prohibitively expensive for many would-be buyers. This helps to ensure that demand remains stable, even as home prices decline in some of AMH's markets, which present a risk to the firm's fundamentals.

AMH's funds from operations (FFO), an important measure of cash flow in the REIT space, have been strong, pushing the firm to raise its full-year guidance in this area as of the latest quarterly report. At the same time, AMH has a strong balance sheet, with net debt to adjusted EBITDA falling to 5.2x in the second quarter.

From an analyst perspective, AMH saw a recent upgrade to Outperform by Wolfe Research, perhaps thanks to its high occupancy rates in the face of external challenges. As an added bonus, FMH provides a dividend yield of 3.69% and an overall analyst rating of Moderate Buy based on an even split of seven Buys and seven Holds. With 22% in upside potential, this company may be worth the risk despite some analysts' lukewarm ratings.

Agricultural Science Wins Lead to Margin Gains, Analyst Optimism

Corteva Inc. NYSE: CTVA leads in the seed and crop industry, making it one of the largest pure-play agriculture science firms available to investors. Although wrestling with pricing headwinds, Corteva has improved its margin considerably—operating EBITDA margin was up by 200 bps year-over-year (YOY) in the last quarter, with the seed segment in particular driving gains—and it is experiencing volume growth in Latin American markets. The firm also posted solid top- and bottom-line beats for the second quarter.

There is always a risk to agricultural companies that the price of commodities may throw an unexpected wrench into investor plans. However, Corteva's unique position allows it to capitalize on innovation and productivity improvements to offset the possibility of reduced prices, poor yields, and other downward pressures. This may be why analysts for Zacks and JPMorgan Chase have recently boosted their ratings for CTVA shares. Overall, the company enjoys 15 Buy ratings compared to just four Holds, and there is a possibility of nearly 28% upside.

Scale, Network, and Efficiency Boost Knight-Swift's Prospects

Truckload carrier Knight-Swift Transportation Holdings Inc. NYSE: KNX provides a range of long-haul, intermodal, and regional freight services. Companies in the logistics and trucking space benefit from their scale, network scope, and efficiency, and as one of the largest firms in this industry, Knight-Swift has an advantage over competitors. As the firm has bulked up both its revenue and its adjusted operating income, it has also made improvements to its efficiency thanks to better routing, asset utilization, and more. This has led the company's trucking segment to improve adjusted operating income by an impressive 88% YOY last quarter.

On the other hand, Knight-Swift is not without risks, including its reliance on broader macro trends and vulnerabilities in a potential recession, or if supply chain issues arise. Still, firms including Stifel Nicolaus and Deutsche Bank have recently upgraded their view of KNX shares, leading to an overall Moderate Buy rating based on 13 Buys, five Holds, and two Sells, plus about 16% in upside potential going forward.