This Just In: Upgrades and Downgrades

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we'll be tracking the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

And speaking of the worst ...
Readers of this feature's companion column -- "Get to Know a Guru" -- had the opportunity to meet Virginian stockbroker Davenport & Company last month. Today, we head south of the Mason-Dixon line once again to examine the firm's downgrade of GPS maker Garmin (Nasdaq: GRMN  ) . This morning, Davenport knocked the stock down a peg from "neutral" to "reduce/sell" -- presumably on concerns that Garmin is in the initial skirmishes of a serious bidding war with Euro rival TomTom, in a fight for the right to buy digital-map maker Tele Atlas.

I certainly understand the concern. At last report, Garmin was beating TomTom's bid by 15%, and market pundits are convinced that the price will go higher. Comments from Garmin CFO Kevin Rauckman (whom I interviewed for the benefit of  Motley Fool Stock Advisor members last year) aren't making investors feel any better. BusinessWeek earlier today quoted the exec as saying, "We're pretty committed to our strategy of acquiring this company."

But while Davenport seems to be focusing on the "committed" part, I stated earlier this week that I'm more interested in the "pretty" qualifier that Rauckman appended to Garmin's commitment. Simply put, I don't believe Garmin will overpay for Tele Atlas. I agree with Stock Advisor analyst Nick Kapur that Garmin doesn't need to own a map company. In sum, I think Davenport's worries are overblown.

Let's go to the tape
Davenport has been far from perfect in its past predictions. On CAPS, where we track its picks, Davenport carries a subpar CAPS rating of 38.45 -- behind more than 23,000 other investors, precious few of whom own their own brokerages. And with an accuracy rating now down to 51%, you can flip a coin and have nearly as good a chance of being right as does Davenport. Its past mistakes include such famed tech names as these:

Company

Davenport Said:

CAPS Says  
(Out of 5):

Davenport's Pick Lagging S&P By:

Allegheny Tech (NYSE: ATI  )

Outperform

****

14 points

Corning (NYSE: GLW  )

Outperform

*****

4 points

IBM (NYSE: IBM  )

Outperform

***

2 points

Of course, with a 51% accuracy record, Davenport has made some good calls as well. This firm is a whiz at picking pop and phone companies, for example:

Company

Davenport Said:

CAPS Says (Out of 5):

Davenport Pick Beating S&P By:

Coca-Cola (NYSE: KO  )

Outperform

****

16 points

Verizon (NYSE: VZ  )

Outperform

****

5 points

AT&T (NYSE: T  )

Outperform

****

3 points

Foolish takeaway
Last month, after describing Davenport's lackluster record, I ended up agreeing with its specific decision to downgrade ConAgra Foods -- which has declined 5% since, I might add. History repeats itself this month, as I find myself once again in agreement with this stock picker's downgrade of Garmin.

To be clear, I do not believe that Garmin will overpay for Tele Atlas, or even that it will end up buying the firm at all. I agree only with the "ends," and not the "means," of Davenport's decision to downgrade. With a stock trading for 33 times trailing earnings -- earnings that most analysts believe will grow no faster than 21% per year over the next five years -- Garmin is just plain too expensive. Add in the fact that the firm trades for 45 times trailing free cash flow, and you won't get me to touch this stock with a 10-foot GPS antenna.


Read/Post Comments (0) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 539679, ~/Articles/ArticleHandler.aspx, 12/21/2014 9:42:10 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement