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 ...
Yesterday was a nasty one for stock investors, as stocks turned red across the board ... mostly. One stock, however, both avoided the carnage and even floated higher -- and for this, Nasdaq OMX (Nasdaq: NDAQ ) shareholders can thank the friendly analysts at Susquehanna Financial, who tossed their shares a lifeline -- and an upgrade to "positive."
What's got Susquehanna feeling so cheery about the Naz? It's hard to say. The only details I've seen so far on the upgrade are those published on StreetInsider.com, which cited: "Incremental market share gains in the U.S." and "European clearing enhancement" as Susquehanna's preferred catalysts to move Nasdaq higher. Unspecified "regulatory rule changes" in the U.S. are also expected to help.
Let's go to the tape
Pretty short horns to hang a bull thesis on, I think you'll agree. And shorter still is Susquehanna's track record in the Diversified Financial Services space. Over three years of watching this analyst's actions, we've only seen Susquehanna endorse one other stock in the industry before -- CME Group (NYSE: CME ) . (And that one has basically tracked the market since Susquehanna recommended it in October, posting less than a one-percentage-point lead over the S&P 500.)
Elsewhere in the market, Susquehanna has enjoyed both successes ...
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Stock
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Susquehanna Says:
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CAPS says:
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Susquehanna's Picks Beating S&P By:
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Amazon.com (Nasdaq: AMZN )
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Outperform
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**
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47 points
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Baidu (Nasdaq: BIDU )
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Outperform
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**
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332 points
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Oracle (Nasdaq: ORCL )
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Outperform
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****
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53 points
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... and failures ...
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Stock
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Susquehanna Says:
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CAPS says:
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Susquehanna's Picks Lagging S&P By:
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Under Armour (NYSE: UA )
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Underperform
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****
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39 points
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MGM Mirage (NYSE: MGM )
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Underperform
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**
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77 points (two picks)
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Simpson Manufacturing
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Underperform
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****
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7 points
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... all of which add up to a record of only 45% accuracy on its recommendations overall (albeit that's good enough to outperform three-quarters of the investors we track on CAPS.)
So why should we follow Susquehanna's advice today?
If Susquehanna lacks experience in this sector, and even its overall record in other kinds of stocks isn't all that hot, why in heaven's name would you follow the analyst's advice and buy Nasdaq today?
Simply put: Because Susquehanna's right. Even a cursory examination of Nasdaq's financials will reveal that this stock just isn't all that expensive. Trading for less than 15 times trailing earnings, and with long-term growth pegged at nearly 15%, the stock looks quite attractively priced -- and it may be even better than that.
Turn to Nasdaq's cash flow statement, and you'll find that this company generated some $763 million in free cash flow over the last 12-month period -- nearly three times its reported income under GAAP. Even when you factor in Nasdaq's sizeable debt load (about $1.7 billion in net debt), this still has the company trading for just over seven times its annual free cash flow -- an out-and-out bargain, in my book.
Foolish takeaway
Even if Nasdaq falls short of analysts' projected 15% growth rate, the stock offers a sizeable margin of safety at this price. There just aren't a lot of companies out there offering the name recognition, business moat, and superb tollbooth economic characteristics of a Nasdaq.
And stocks bearing all these characteristics, selling for a discount this big? I can count them on the thumbs of one hand: Nasdaq.
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