Wall Street analysts have recently raised their price targets on three exciting stocks with significant upside potential. Building technology company Johnson Controls (JCI -1.27%) is a major player in reducing carbon emissions and improving building efficiency. Meanwhile, the prospects of lithium extractor Albemarle (ALB -0.96%) will improve as electric vehicle (EV) production grows. Roofing, insulation, and door specialist Owens Corning (OC -1.10%) would benefit from an improving housing market. Still, are these stocks worth buying?
Johnson Controls: A stock to buy for its near, medium, and long-term growth prospects
Analysts at JPMorgan and Jefferies both recently raised their price targets on Johnson Controls stock, citing the company's solid outlook on 2025 earnings and its growing commercial backlog.
The upgrades highlight the multifaceted investment case for the stock. The company's heating, ventilation, air conditioning (HVAC) systems, building controls, software, and OpenBlue suite of connected solutions help building owners improve efficiency and reduce emissions. As such, its long-term growth looks assured, particularly given that many commercial building owners are committed to long-term "net zero" goals on greenhouse gas emissions.
Over the medium term (and probably the long term), Johnson Controls has a growth opportunity due to burgeoning demand for its technology from data centers that are serving soaring AI-application-related demand.
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Also in the near to medium term, a change of CEO and an ongoing restructuring could improve the focus of the company and enhance its track record for meeting guidance. The company has already announced the sale of its residential and light commercial HVAC business to Bosch in a deal valued at $8.1 billion. Meanwhile, it's reported to be exploring a sale of its ADT alarms business.
With current CEO George Oliver set to retire once his successor has been found, and a restructuring underway, the market could rerate the stock.
Albemarle: A play on the growth of lithium batteries in electric vehicles
The marginal demand from lithium's use in EV batteries has been one of the key drivers of the price of lithium compounds and, in turn, of revenue and earnings at Albemarle. That's part of the reason behind a Wells Fargo analyst's recent decision to upgrade the price target on the stock to $110 from $100.
China's efforts to boost its economy by injecting liquidity into its banking system are expected to increase demand for electric vehicles, leading to higher battery production and greater demand for lithium. That's a positive development in a year that has seen a reduction in expectations for EV production, with lower-than-expected sales and cutbacks in automakers' EV investments.
That said, the debate over Albemarle stock isn't just about lithium demand and EV sales. It's also about lithium supply. An investor may feel confident about EV demand but have concerns that supply growth will outmatch demand. While there's no shortage of reports from leading bodies, such as the International Energy Agency (IEA), outlining potential shortages based on supply from announced projects, the reality is that there's no shortage of interest in expanding lithium production. There's also no shortage of lithium on the planet.
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Indeed, the leading lithium-producing countries, including Chile, Australia, China, Canada, and the U.S., are actively engaged in efforts to build up production capacity. In Europe, Rio Tinto is campaigning to open a significant lithium mine in Serbia.
All told, the long-term outlook for lithium pricing and Albemarle's long-term growth prospects are far from certain.
Owens Corning: A bet on a housing market recovery
Wells Fargo recently raised its price target on Owens Corning stock to $175 from $165, noting the housing sector's recent outperformance. This is a net positive, but it still reflects some caution on Wells Fargo's part.
It isn't easy to buy the stock of a company during a challenging period for its end markets. Similarly, management teams find it difficult to commit to acquisitions when their end markets look challenged. The history of the market is littered with missed opportunities to buy when the mood is fearful.
However, Owens Corning may have taken advantage of one such opportunity earlier this year by acquiring Masonite, the interior and exterior doors company. That deal may prove a masterstroke. Not only did Owens Corning add a complimentary product to its portfolio (the customers that already buy its roofing and insulation products are the same ones that buy doors), but it also increased its exposure to the North American residential housing market.
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As such, an improvement in the housing market, driven by a lower interest rate environment, will benefit Owens Corning. Meanwhile, suppose Owens Corning achieves its targeted $125 million in synergies from the deal. In that case, it will have bought Masonite for just 6.8 times its earnings before interest, taxes, depreciation, and amortization (EBITDA) at the bottom of the housing market cycle.
All told, Owens Corning looks like an excellent stock to buy for housing market bulls.
