3 Stocks Upgraded by Analysts: Home Depot, U.S. Steel, Alcoa

Key Points

• Analysts had to wait until the next earnings season to let the market know where they stand on these three stocks. 
• Boosting their ratings on all three, investors can dive deeper into the fundamental reasoning behind these decisions. 
• Double-digit upside lies ahead for these names, and tailwinds abound to help them get there. 

Investors should take Wall Street's view of a particular sector or stock with a grain of salt, as there are typically conflicts of interest behind these views. Think about it: if an analyst working for an investment bank decides that a company's future is bearish, that analyst could risk losing his or her job over a particular stock's rating. Still, if that company is a significant client of another of the bank's branches, that analyst could risk losing his or her job over a particular stock's rating.

However, when armed with the right tools, investors can dissect and pinpoint where these analysts could be coming from when finding the correct assumptions backing certain stocks. Three stocks being boosted by analysts today do have relatively straightforward fundamental tailwinds to back these forecasts. More than that, today’s business cycle is the biggest reason to look into these ratings.

Inside this list, investors can find The Home Depot Inc. NYSE: HD riding on the same tailwinds in the real estate sector that even Warren Buffett caught up to when buying homebuilding stocks last year. Then, United States Steel Co. NYSE: X is a secondary play within the same storm. Alcoa Co. NYSE: AA also comes in to deliver another way to ride on the next step in the business cycle.

Analysts Predict Home Depot Stock to Surge with Housing Cycle Boost

Recently, U.S. home listings rose after a sluggish start to the year. After stocks like Zillow Group Inc. NASDAQ: Z rallied in recent weeks, the value chain looks to advance toward the home improvement sector, where Home Depot dominates.

As of Q1 2024, statistics show that Home Depot controls over 61% of the home improvement industry’s market share. Because of this positioning, investors should take new price targets more seriously than if there weren’t other fundamental reasons.

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Those at TD Cowen saw it fit to boost Home Depot stock’s price target to $420 a share, daring it to rally by 22% from where it trades today. Now that markets realize these new home listings could turn into new improvement projects for investors to finance, bearish traders have started to back away from Home Depot stock.

Over the past month, short interest dropped by 1.6%, showing that bullish sentiment could be building for Home Depot stock based on these analyst boosts.

How a Commodity Rally Shaped United States Steel's Latest Price Target

Steel prices are now back to pre-COVID levels, which will help the construction and infrastructure trends that also helped boost Home Depot’s valuations. Here’s how investors can break down United States Steel’s future to justify recent price target boosts.

The Federal Reserve (the Fed) is looking to cut interest rates later this year, which could be bearish for the U.S. Dollar. A weaker Dollar makes American exports more attractive to foreign buyers. Still, to export products, the manufacturing sector needs to produce.

New business activity will call on commodities like steel to address the ensuing demand. For this reason, analysts at BMO Capital Markets raised their price targets on United States Steel to $45 a share, or 19% above today’s price. That valuation is also close to Morgan Stanley’s $48 per share.

To ensure this thesis plays out, investors can keep up with the ISM manufacturing PMI index. When it starts expanding on these trends, United States Steel stock could be set to rally toward analyst targets. More than that, those at Goldman Sachs expect this same breakout, as written in the bank’s 2024 macro outlook report.

Analysts Connect the Dots: Double-Digit Upside for Alcoa Stock

Now, out of all the stocks riding on the potential boom in construction and infrastructure or the export demand that could come to prove Goldman Sachs right, Alcoa is the one analysts believe could deliver the most upside for investors savvy enough to look behind the scenes.

As the company makes aluminum products, which are exposed to construction, manufacturing, transportation, and consumer staples products, analysts felt even better about this stock moving forward. Those at Morgan Stanley and Citigroup shook hands to give Main Street more of the same.

These mutual valuations landed on a similar price of $50 a share for Alcoa stock. To prove these analysts right, the stock must rally by 25.6% from where it trades today.

Because aluminum prices have already rallied this year, demand may have already floated to that sector, making Alcoa a potentially attractive buy today. This is why the Vanguard Group raised its stake in Alcoa stock by 0.2% as of May 2024, bringing the asset manager’s net investment to $607.9 million today.