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 ...
Watching the analyst upgrades roll in on Plum Creek Timber (NYSE: PCL ) these past two weeks has been about exciting as, well, watching trees grow. What's more, I very much suspect that watching trees grow is more edifying than reading these upgrades.
Since late October, we've seen not one, not two, but three analysts express interest in Plum Creek -- and not a one of them has said a thing worth noting (at least, not that they've made public). First, DA Davidson, back on Oct. 28, upgraded Plum Creek to buy, and nobody knows why. A few days later, Goldman Sachs (NYSE: GS ) reinitiated coverage of the stock at neutral, but with no details released to the mainstream press. Most recently, UBS weighed in with a Davidson-like buy rating -- and for a third time, no explanation was given.
So, um, what's with the silent treatment, people?
Let's go to the tape
As an individual investor myself, I know how frustrating this can be -- seeing analysts slap ratings on stocks, seemingly at random, with no one bothering to say why. But when this happens, there is at least one place an investor can turn for guidance and perspective: Motley Fool CAPS.
We may not always know exactly what the analyst is thinking. But thanks to CAPS, we can at least tell you how well it thinks (Goldman excepted. For it, you'll need to look elsewhere).
Take Davidson for example. Historically, this analyst only guesses correctly on its picks about 43% of the time -- and ranks in the bottom 20% of investors as a result of picks like:
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Company
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Davidson Said:
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CAPS Says:
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Davidson Pick Beating (Lagging) S&P by:
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International Paper (NYSE: IP )
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Outperform
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***
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(16 points)
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Weyerhaeuser (NYSE: WY )
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Outperform
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**
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(12 points)
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UBS has a slightly better record. The Swiss banker has fared better than many of its peers in calling the ups and downs of the housing crisis and the companies it directly affects -- but as you can see, "better" ain't the same thing as "good":
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Company
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UBS Said:
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CAPS Says:
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UBS's Pick Beating (Lagging) S&P by:
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Lowe's (NYSE: LOW )
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Outperform
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***
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3 points
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Ryland (NYSE: RYL )
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Outperform
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*
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(34 points)
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Pulte (NYSE: PHM )
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Underperform
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*
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(1 points)
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With stats like these, I doubt you'll be shocked to learn that UBS ranks in the 21st percentile of investors tracked by CAPS, and guesses wrong more often than right.
You've met the raters, now rate the ratings
So where does that leave us with respect to Plum Creek? I wish I could tell you, Fools. I really do. Obviously, the analysts are of little help to us today. But to be embarrassingly honest -- I'm at a loss as to how to value this stock myself.
On the one hand, I find little attraction in Plum Creek's 21.3 P/E ratio, or the fact that because it generates significantly less free cash flow than it reports as net earnings under GAAP, Plum Creek's price-to-free cash flow ratio is larger still.
Foolish takeaway
On the other hand, Plum Creek is still profitable, whereas rivals like Louisiana-Pacific and Weyerhauser are still losing money. As such, it stands to reason that Plum Creek's plump 5.1% is safer than most -- and in a market like this one, even a guarantee of just 5% returns is worth considering.
On balance, I can think of a lot of stocks I'd be less eager to own than Plum Creek. But the plain fact of the matter is -- there are even more stocks out there that are both cheap and easier to value than this one. Given my druthers, I'd rather own those.
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