While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Rite Aid Corporation (NYSE: RAD ) popped about 3% this morning after Goldman Sachs upgraded the drugstore operator from neutral to buy.
So what: Along with the upgrade, analyst Robert Jones boosted his price target to $8 (from $5), representing about 24% worth of upside to yesterday's close. So while contrarians might be turned off by the stock's strength during the past year, Jones' call suggests that the positive sentiment surrounding Rite Aid's turnaround story isn't fading anytime soon.
Now what: According to Goldman, Rite Aid's risk-reward trade-off remains rather attractive. "Two key elements to the story are store remodels and balance sheet deleveraging, and the expanded agreement with [McKesson] should allow for the acceleration of one or both," said Jones. "Importantly, on its core outlook, we see stronger comp growth ahead, which should only be compounded by RAD's higher exposure to states that expanded Medicaid (65% of stores vs. 47% for [CVS Caremark] and 54% for [Walgreen]...)." When you couple Rite Aid's red-hot stock price with its still-hefty debt load and fragile competitive position, however, I'd wait for a much wider margin of safety before jumping in.
More compelling ways to build wealth
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks, as a group, handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks, in particular, are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.