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 track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
And speaking of the best ...
Much was the lamentation when Amazon.com (Nasdaq: AMZN) reported earnings last week. Plummeting profits and worries over a dearth of software and video game sales set the online retailer up for an 8% sell-off, and ripped a gaping hole in investor portfolios; one which has yet to be repaired. But fear not, investors. For according to UBS, your profits-repair crew is en route.
The legendary Swiss banker issued a slew of new stock reports yesterday, initiating coverage across the length and breadth of the electronic entertainment industry. And the best news: UBS likes most of these stocks.
Generally speaking, UBS seems to be anticipating a revival of fortunes across the e-commerce industry. It also initiated coverage on Amazon.com itself, calling the firm a "core e-commerce holding," and Google (Nasdaq: GOOG), which UBS believes is "best positioned for cyclical recovery" in this industry. Both those companies receive "buy" ratings from UBS.
Less attractive, in the banker's view, are:
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eBay (Nasdaq: EBAY), which UBS believes is "executing the transition well" from pure auctioneer to more of a fixed-price retailer.
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Netflix (Nasdaq: NFLX), which is negotiating a transition of its own as the world evolves from a DVD model to one in which digital transmission of movies over the Internet becomes the norm.
- UBS seems less pessimistic than most about Yahoo!'s (Nasdaq: YHOO) decision to outsource its search department to Microsoft (Nasdaq: MSFT), calling this the "right path" for Yahoo!
Each of these latter three, however, UBS rates only "neutral."
Why should you care what UBS thinks?
You needn't, necessarily. Fact is, a little bit of fifth-grade math is about all you need to run the numbers on your own, and determine that UBS is basically right on the money on most of these stocks. Generally speaking, they all look pretty fairly valued to me.
But if it's of any comfort, you should also know that UBS has a pretty strong record of making recommendations that "work out" for investors. In fact, three years of data-crunching here at Motley Fool CAPS reveal to us that the banker outperforms close to 90% of its peers.
A Fool begs to differ
If there's one point on which I differ with UBS' assessments, it's that I'm not 100% certain it's valuing eBay's prospects correctly. Valued at $25 billion by the market (after you net out its cash and debt), and with $2.2 billion in trailing free cash flow, eBay looks almost perfectly priced for 11% growth -- the rate at which most analysts expect eBay to increase its profits annually, over the next five years.
But while such a valuation takes into account eBay's most obvious asset (the cash), it misses the company's stakes in such potential producers of gangbusters growth as:
Foolish takeaway
Between its core business in auctions, its gaining traction in the fixed-price marketplace, and these five powerful-but-unknown quantities, it seems to me that eBay's 11% growth estimate might be just a wee bit conservative.
Mind you, I'm not saying UBS is clearly wrong about this one ... I'm just sayin'.
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