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 ...
I know Germans have a reputation for hard work and diligence -- but this is ridiculous. Yesterday, Deutsche Bank initiated coverage on not one, not two, but 31 separate transportation stocks! If we here in the U.S. are just starting to see "green shoots," it seems the folks on the other side of the pond are expecting a veritable bumper crop of Jack-in-the-Beanstalks to erupt.
The question for investors is: How long till harvest time?
Jack and the magic beanstalks
Out of the nearly three dozen opinions issued yesterday, Deutsche handed out a full dozen buy ratings, notably for:
- Norfolk Southern (NYSE: NSC )
- CSX Corp
- FedEx (NYSE: FDX )
- Diana Shipping (NYSE: DSX )
In contrast, only two stocks got tagged as "sells":
- Frontline (NYSE: FRO )
- Eagle Bulk Shipping (Nasdaq: EGLE )
The bulk of the stocks reviewed -- 17 of 'em -- received a shrug and a "hold" from Deutsche. Why? It's impossible to give each stock its full due in today's column. But I can at least give you a sense of some of the "themes" Deutsche focused on. Generally speaking, these seem to be as follows:
- Time frame. Deutsche speaks repeatedly about companies' "medium-to-long-term" prospects. Companies that price their services on the spot market -- Teekay Tankers, Genco Shipping -- garner particularly low marks. In contrast, the banker gives Diana a buy rating in large part because of its emphasis on "medium-to-long-term time charters," while Deutsche also notes a "favorable long-term outlook for the railroad sector." And where the rubber meets the road, Deutsche argues that an "eventual" recovery in the freight market will benefit Heartland Express and Old Dominion Freight.
- Leverage. Bigger is better -- at least in Deutsche's view. The banker speaks several times of how companies like FedEx, UPS (NYSE: UPS ) and Norfolk Southern may be able to boost profits from operating leverage as volume returns to the shipping biz.
- Discipline. Deutsche commends both Union Pacific and CSX for implementing "cost control/productivity" improvements, which are salvaging margins despite a falloff in revenue.
Patience is a virtue
And yet, while the distant future may look bright, Deutsche warns we're not out of the woods yet. Germany's leading banker speaks of how a "very challenging LTL marketplace" is frustrating YRC Worldwide (Nasdaq: YRCW ) , for example. And the "near-to-medium term tanker environment" remains "challenging," which puts a damper on its enthusiasm at General Maritime and Frontline.
Given the short-term pessimism and the uncertainty inherent in long-term forecasting, Deutsche also makes a prudent bet on valuation, recommending only the stocks that it sees as selling for less than their inherent worth while reserving judgment on more fully valued equities. Valuation seems to be the deciding factor in Deutsche's sell ratings as well. In the case of both sell-rated stocks -- Frontline and Eagle Bulk -- the valuations are described as "lofty" or "premium."
Where to from here?
What's a Fool to do with Deutsche's ratings? Thirty-one separate opinions can be a lot to digest, but if you ask me, it's worth the effort to try and take something away from Deutsche's magnum opus.
Three years of carefully tracking this banker's opinions, and how they've played out, have confirmed for us that Deutsche ranks in the top 10% of stockpickers in our global community. More often than not, this banker is right on its ratings -- and right now, Deutsche is telling us that while the prospects for a global economic revival are real, they're also quite a ways off. Yet valuations on many stocks have gotten stretched, as bulls gain the upper horn on Wall Street.
My advice: Do as Deutsche does. Review all the options, but pick your stocks carefully -- and make sure not to overpay.
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